The real estate industry, a pillar of China’s economy, is in the spotlight as the country faces challenges in its transition to innovation-driven, high-quality development.
Central authorities have ordered real estate development after China Evergrande Group, one of China’s real estate market giants, began facing serious financial problems, raising concerns that it would have a domino effect on the real estate market. Introduced a series of policy incentives to help traders meet the sector’s demands. various requests.
However, to address the obvious risks to the property market and accelerate the economic recovery, the government is implementing more measures, including reducing down payment percentages for apartments, lowering mortgage rates and adjusting eligibility criteria for first-time home buyers. Tailor-made policies need to be adopted. .
In fact, despite some contract violations, favorable policies have contributed to stabilizing the real estate market to some extent. From January to September this year, the transaction volume of both new and used housing properties nationwide achieved positive growth, and the volume of completed housing increased by 19.8%, indicating an increase in trust and expectations.
Central authorities have made it clear that the relationship between supply and demand in the real estate sector is fundamentally changing. Some first-tier cities have introduced new mortgage-related policies and first-home buyer identification measures with the aim of lifting administrative restrictions, while some other large cities have Restrictions on real estate purchases and real estate loans are being lifted.
These developments will stimulate real estate market recovery in more tier 3 and tier 4 cities, while supporting urban village renovation projects, construction of affordable housing with government subsidies, optimization of supply and demand mechanisms, etc. The measures will further improve the structure of the housing sector. Ensure low- and moderate-income people have access to affordable housing. Therefore, China’s risk management measures in the real estate sector are likely to be successful.
However, the real estate sector’s recovery will be a winding process, with different cities and regions facing different challenges. Therefore, to ensure the healthy development of the industry, more mechanisms need to be reformed by treating not only the symptoms but also the root causes of socio-economic diseases.
For example, it is essential to deepen reforms that address root causes, such as land use rights, the land revenue system, the dual housing system, the system for cooperation between corporate finance and policy finance, and the fixed asset tax system.
One of the reasons why the real estate sector experienced ups and downs was that local governments focused on competitive trading mechanisms for land use rights against the backdrop of incomplete local tax systems. It was very easy for local governments, the owners of the land, to “collude” with real estate developers and sell the land to them at high prices. Developers sold homes at higher prices to homebuyers to cover the land costs. This is how “land finance” was born.
The key to dealing with the problems caused by local governments’ land finances is to reform related mechanisms, such as the imposition of property taxes, so that local governments can earn stable and relatively sufficient income every year. It is. This could encourage intensive use of land and curb twists and turns in the real estate sector.
Property tax systems contribute to market stability and have the potential to provide stable financial resources to local governments, which can use these revenues to optimize public services and improve the investment climate. However, to levy property taxes, local governments need to provide higher quality public goods and calculate the tax base at regular intervals, which requires local governments to improve public services. It means that. Furthermore, imposition of property taxes also helps redistribute resources, which in turn promotes common prosperity.
Property tax collection is being piloted in Chongqing and Shanghai, but the central government needs to gradually expand the pilot areas. Efforts should also be made to establish long-term mechanisms to minimize risks to the real estate market and free local governments from dependence on land revenues. In other words, establishing a modern property tax system will promote modern governance and quality development.
The author is chief economist at the China New Supply-Side Economics Institute.
The views do not necessarily reflect those of China Daily.