This is the bind of Beijing, and other major Chinese cities affected by China’s property boom — they need to kill off any potential bubble, but at the same time their economy has grown massively dependent on property.
For the Americans out there, this problem might sound familiar.
Yet to grasp just how dependent cities are on economic activity from property, note how, so far this year, over 50% of fixed investment in Beijing has been property-related:
China’s capital [Beijing] reported 110.37 billion yuan ($16.18 billion) in fixed-assets investment in the first four months, a growth of 32.5 per cent on the same period of last year.
The total included in 55.59 billion yuan in real estate development, up 64.4 per cent. Of the investment in the property sector, 25.93 billion yuan went to commercial housing projects, up 58.8 per cent.
Yet they can’t let things continue forever either. Even the city’s real estate association has admitted to a property bubble and it’s also become dead obvious to others that speculation is driving prices, rather than underlying demand for living spaces.
For example, via Capital Vue, wealthy Chinese accounting for just 10% of the country’s population account for 50% of property transaction volume according to Wang Xiaoguang at the Chinese Academy of Governance. In some cities such as Shenzen, near Hong Kong, Wang Xiaoguang attributes 80-90% of activity to speculation.
Now there are fresh rumours of a property tax hike:
The State Administration of Taxation (SAT) is rumoured to be enlarging the scope of property taxes, with details expected to be released by May 20, reports 21st Century Business Herald, citing sources close to the SAT.
There are also reports of Chinese property buyers simply freezing up since they’re confused about how new regulations will unfold.
If China’s property tightening works, watch for economic activity in major Chinese cities to nose-dive. If it doesn’t work, prices will keep rising rapidly and wait for the pop. No speculator-driven market sky-rockets and then simply stops.