Privatized housing impedes cooling
efforts By John Ng
HONG KONG - Housing privatization in
Chinese cities, which only began in the early
1990s, has proceeded at an amazingly fast pace.
After a mere 10-plus years, more than 80% of
Chinese urbanites now own their dwellings.
While the Chinese media boasts that the
proportion of private housing in Chinese cities is
now higher than that in some advanced countries
such as the US or the United Kingdom, analysts say
the high degree of privatization in fact poses a
challenge to Beijing's policy of bringing down
housing prices. And it also explains why the
secondary housing market in China has remained
inactive.
On Tuesday, the Ministry of
Construction released its 2005 statistics on
housing in Chinese cities. According to the
statistics, 81.62% of urban
residents owned their own homes by the end of
2005. The statistics only cover cities, as in
rural areas, a farm family would normally be
allocated a piece of land to build their own home
and there is therefore no real estate market in
the countryside as such.
The Shanghai Securities News,
one of China's leading business newspapers
published by the state-run Xinhua News Agency,
says the private housing ownership rate in Chinese
cities is higher than that in many advanced
countries. In the United States, the private
ownership rate is reported to be 68%, while in the
United Kingdom it is 67%. The rate is much lower
in Germany - about 42%.
For China this is
an amazing development, considering that until the
early 1990s there was no private housing at all in
Chinese cities. Before the reform, the government
owned all housing in cities and was responsible
for providing shelter for urban residents. The
rapid progress in privatization is largely due to
the fact that the Chinese government has sold
public housing to the occupants at subsidized
prices which were affordable to many. Now the
government has stopped taking care of housing
problems for urban residents.
While
hailing the achievement, market analysts note that
the high private ownership rate has become a major
factor dictating housing supply and demand, which
poses a serious challenge to the government's
efforts to curb housing prices.
The latest
statistics from the Ministry of Construction show
the rapid development of the urban housing market
and the greatly improved living conditions of
urban residents, said Chen Sheng, a Shanghai-based
expert on the study of economic indices in China.
But he urged the government to heed the
high private housing rate, according to the
Shanghai Securities News. In his view the rapid
privatization was driven by the strong nationwide
demand for homes, which in turn pushes up prices.
Lin, a property analyst with a Shenzhen
real estate agency, said that it was a dream of
all Chinese to own their own homes, in accordance
with longstanding Chinese tradition that real
estate, as opposed to stocks, bonds or currency,
is "genuine" property. "As so many people have
been rushing in to buy housing over [the] past
[several] years, how can prices not go up?" he
said.
The high ownership rate simply
suggests that almost all city residents who could
afford to buy their own homes have already done
so. "Those who could not afford [houses up to now]
may not be able to buy their own housing at all
[even if prices go down]," Lin said, adding that
it was natural that there would always be some
people who could never afford to buy houses.
Under such circumstances, the major
consumers in the property market now are
homeowners who want either to improve their living
conditions or to invest in real estate. "For
either purpose, the major demand is for bigger
apartments or villas, not small, low-cost flats,"
he said. This is why property developers are keen
on luxury housing projects.
From this
point of view, Beijing's policy of restricting the
development of luxury housing seems at odds with
market demand, which certainly is a crude
intervention in the market. "To take care of the
poor people who could not afford [to buy] their
homes should be the responsibility of the
government, not of property developers. Instead of
intervening [in] the market, the government
perhaps should learn from Hong Kong or Singapore
[by building] low-cost public housing for poor
city residents," the Shenzhen-based analyst said.
Alarmed by housing price hikes this year,
the Chinese government has toughened its
belt-tightening policy on property development,
including restrictions on the building of luxury
apartments and banning the construction of villas,
in the hope of encouraging developers to focus on
building low-cost housing.
One more point
can be made here. The high private housing
ownership rate suggests that Beijing's move to
bring down housing prices may be against the will
of the majority of urban residents. For, no
homeowner would be happy to see a decline of his
or her home value even if he or she does not want
to sell it. And in practice, a significant decline
in housing prices may turn those who mortgaged
their property to banks into "negative equity
owners" (ie, the market value of their property
has become less than the mortgage loans they owe).
The statistics, if anything, show that the
property sector in China's cities is now basically
market-oriented. If the government truly believes
in a market economy, it should keep its hands off
and let market forces decide on housing pricing.
What goes up must come down. If housing prices are
too high now, they will come down even without
government intervention.
It is true that
property speculation is active in some major
cities which has helped to push prices to
unreasonable levels. But the government can crack
down on housing speculation with regulatory
measures instead of crude direct interventions.
According to Ministry of Construction
statistics, the total gross floor area of housing
in cities across China reached 16.45 billion
square meters by end of last year, 65.5% of which
was residential housing with the remainder either
office or commercial space. The statistics also
show that the average per capita housing space in
Chinese cities was 26.11 square meters in 2005.
John Ng is a Hong Kong-based
freelance writer.
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