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2 SUN WUKONG China's land supply
conundrum By Wu Zhong, China Editor
million square meters of gross
floor space could be built, or 2.2 times that of
2005.
However, what is puzzling is that
increased land supply has not pushed down land
prices but, to the contrary, keeps driving up
prices, hence giving developers the excuse to sell
housing at higher prices. The law of supply and
demand is apparently being
distorted here. What has gone
wrong?
It is simply that the Guangzhou
government is happy to see land prices being
pushed up so that it can derive a larger income
from land sales to fund its infrastructure
projects, which in turn could boost local economic
growth. For instance, Guangzhou is expanding its
underground public transport network, which needs
huge investment.
Fully aware of this,
property developers, having reaped staggering
profits from the booming market over the past few
years, are willing to bid higher for land.
For example, the last public land auction
in Guangzhou in 2006 set a record high price. The
auction was held on December 20 to sell a lot for
office space. After 145 biddings, the lot, with a
total area of 24,900 square meters, was sold at a
"heavenly high" price of 742 million yuan - that's
nearly 30,000 yuan per square meter. This is the
most expensive lot in Guangzhou's history.
According to the development plan, the land cost
would be more than 10,000 yuan per square meter of
the gross floor space of the building complex to
be erected. It is thus estimated that the office
building to be constructed on the lot will have to
sell for more than 20,000 yuan per square meter.
The lot is in the Pazhou area, near
Guangzhou's new convention and exhibition center -
the venue of the twice-yearly Canton Fair. A newly
constructed high-quality office-building complex
nearby is on the market for about 10,000 yuan per
square meter, but it is not selling well. This
means that the developer who bought the lot
expects the price to double in the next couple of
years.
Are developers really so optimistic
about the future of the market? More likely they
are playing games to defy Beijing's macroeconomic
controls. They are also sending a message to
potential homebuyers: since the price of land
keeps going up, real-estate prices will inevitably
increase - so hurry if you want to own your own
home!
Ironically, the developers and the
local government appear to have the same desire to
drive up land prices, though the two sides may
have very different motivations. Yet this is a
good example of how easily central government
policy can be circumvented at the local level.
From another perspective, however, Beijing
may need to conduct a thorough review of its
housing policy. Should housing be treated
completely as a commercial commodity, a special
one as it may be, or partially as a public service
required of the government? Beijing must make up
its mind.
Since the introduction of
privatized housing in the 1990s, the Chinese
government has seemingly come to regard housing
entirely as a commercial commodity. If that is the
case, it must also consider privatizing land
ownership so that market forces can truly play
their role in the property sector.
But if
Beijing wants to retain state control of land and
also considers providing housing a part of public
services the government should be responsible for,
then it could learn from Hong Kong or Singapore,
where low-cost public housing is available for the
needy, leaving private housing to those who can
afford it.
The paradox of Beijing's
current housing policy is that it wants to take
care of the public, but it does not want to spend
anything. So it appeals for "social
responsibility" on the part of property developers
and asks them to build low-cost housing for
low-income families. This sounds somehow
ridiculous. To ask profit-hungry developers to
take care of the public interest would be like, to
borrow a Chinese metaphor, "asking a tiger to
donate its skin".
And it is this paradox
of Beijing's policy that leaves room for the local
governments and property developers to play games
getting around Beijing's policy.
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