New measures focus on controlling price hikes while maintaining the property sector’s impetus to aggregate demand
　　
　　China’s real estate market, like its stock market, is in urgent need of a “policy” remedy. But while the stock market needs policies to stimulate it, the real estate market needs policies to cool down the overheating investment and exorbitant prices.
　　Real estate developers have had a rough 2005 with a series of measures taken to rein in the market. They seem to have taken effect--soaring real estate prices in Shanghai have dropped and nationwide investment growth in real estate has slowed down.
　　However, the real estate investment and prices of commercial housing are still high, relative to China’s economic development and residents’ income. In fact, the retail price of commercial housing has actually risen nationwide.
　　Data from the National Bureau of Statistics show that between January and November 2005, the investment in real estate saw a year-on-year increase of 23.6 percent, and reached 1.48 trillion yuan ($183 billion), accounting for 23.4 percent of the total fixed assets investment during the period. Retail price of commercial housing at the end of November 2005 was 700 yuan ($86) more than the price in the beginning of the year. The price increased month on month.
　　Obviously, policy control of the real estate market in 2005 has only slowed the growth of investment in real estate. Will the real estate market continue to be subject to policy controls this year?
　　
　　New initiatives
　　
　　Some of the measures passed in 2005 to prevent overheating of the real estate sector have been implemented since January 1, 2005. They include:
　　
　　Pre-collection of land value-added tax on large-area commercial housing
　　From January 1, a 0.5-percent pre-collected land value-added tax has been levied on apartments with an average floor area of more than 140 square meters. Land value-added tax will not be collected on those smaller than that.
　　It is stipulated that no adjustments will be made for projects developed before 2006 and subject to tax, as earlier policies were. From 2006, real estate developers should fill in the Commercial Housing Floor Area List before the end of March, when they have their land value-added tax projects registered. Local tax administrative departments will decide whether to collect land value-added tax based on these forms.
　　
　　New interest rates on home mortgage loans
　　From January 1, commercial housing loans will be subject to new interest rates. Mortgages inked before March 17, 2005 will be dealt with as follows: As of 8 p.m. on December 25, 2005, if borrowers have been paying off mortgage loans all on time, the loan interest will be 10 percent lower than the benchmark interest rate for commercial loans issued by the People’s Bank of China on January 1. Otherwise, the benchmark interest rate will be used.
　　
　　Energy efficiency standard for newly constructed civilian buildings
　　Provisions on energy efficiency for civilian buildings passed by the Ministry of Construction have been put into effect since January 1. Accordingly, newly constructed civilian buildings should strictly implement the energy efficiency standard. When civilian construction projects are rebuilt or enlarged, they should be converted into energy-efficient ones. Also, all real estate developers should highlight and provide easy access to their energy saving measures, exterior design and insulation capacity in their sales offices and include these in their information brochures.
　　
　　Disclosure of unused land
　　
　　Disclosure of unused land will be one of the key tasks of the Ministry of Land and Resources in 2006. It will disclose the land that has been approved but not used within the prescribed time. Land use will be subject to restrictions and projects exceeding the allowed investment and height requirements will be stopped. Tax policies to increase the use of unused land will be put in place to ensure optimum land utilization.
　　Gu Yunchang, Secretary General of the China Real Estate Association, said that these policies call for higher standards in terms of capital, house design and technology. The new interest rates on home loans will reduce the number of people buying more than one apartment based on loans. Disclosure and reclamation of unused land will act as a restraint on real estate developers running short of funds.
　　
　　More of the same
　　
　　Wang Guangtao, Minister of Construction, said that in 2006 China will continue measures to strengthen real estate control, with the focus on adjusting supplies, controlling the scale of real estate investment and stabilizing housing prices.
　　One policy measure, which was in dispute last year but is likely to be implemented this year, is that second-hand sellers will have to pay a 20-percent gain tax. Although the State Administration of Taxation and the Ministry of Construction have not confirmed this, they have not denied it, either.
　　A capital gains tax of as high as 20 percent will have a direct impact on speculative house purchases. Much of the rise in property prices in China in the last two years is attributed to speculation.
　　This year may also see a property tax being brought in. Such a tax is levied on land and houses. Property tax reform is aimed at combining current charges such as the real estate tax, urban real estate tax, land value-added tax and land transfer fee.
　　Nie Meisheng, Chairman of the Chamber of Commerce of Real Estate Industry affiliated to the All China Federation of Industry and Commerce, said that if a property tax is collected, housing prices will drop substantially, but costs to homebuyers will increase at the same time.
　　Nie said land policies supporting the development of villages and small towns, adjustment of policies on housing for low-income groups and the reform of real estate mortgage loans will be the new measures in 2006.
　　Ba Shusong, Deputy Director General of the Financial Research Institute under the Development Research Center of the State Council, said he expected to see new financial instruments suitable for real estate financing this year.
　　Ba said although some real estate funds operate in China, most of them look to overseas markets owing to opaque laws and regulations. Recently, officials and scholars in Beijing held a forum on industrial fund, with participation from the National Development and Reform Commission, academia and financial circles. A basic framework for industrial fund was worked out.
　　Chen Huai, Director General of the Policy Research Center under the Ministry of Construction, said that in 2006 housing consumption will be encouraged, especially consumption of houses for living.
　　Chen added that 2006 is a transitional year from the 10th Five-Year Plan (2001-05) to the 11th Five-Year Plan (2006-10). The Central Government hopes to maintain moderate growth of aggregate supply, while expanding aggregate demand. Housing consumption will contribute significantly to increasing consumption demand and provide the most impetus to upstream and downstream industries.
　　Shu Kexin, Deputy Director of the Department of Land Use Management of the Ministry of Land and Resources, said that in 2006, the ministry will allocate more land for ordinary housing, continue restricting land for villas and for low-density housing.
　　
　　Pillar industry
　　
　　“The fact that real estate is a pillar industry in China’s economic development will not change in the near future. Every policy promulgated by the Chinese Government is aimed at maintaining stable and healthy development of real estate,” said Yang Shen, Chairman of the China Real Estate Association.
　　The Central Economic Working Conference held in Beijing last November also reiterated this. Currently, the fixed assets investment in real estate stands second only to manufacturing in the total fixed assets investment. Industrial insiders say investment in real estate will grow at about 20 percent in the next five years.
　　Yang pointed out that of the three driving forces of economic growth, foreign trade and investment will weaken from 2006, while consumption will play a stronger role. “The largest consumption area is real estate. Houses and apartments are in severe shortage. Solving this problem is a historic task. So house consumption is very important,” he said.
　　Zhao Xiao, Director of Macro Economy Department of the Economic Research Center under the Assets Supervision and Administration Commission, said exports will provide less impetus to economic growth in 2006. “Maintaining the investment growth in the real estate industry will be significant to macro-control. When our economic impetus transfers to consumption, it will start with consumption on houses and apartments, as well as automobiles,” he said.

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