The subprime crisis in the US ignited a global housing market crash since the end of 2007. China was not immune to this catastrophic domino effect. However, unlike many other countries, Chinese real estate market was less affected. It is quite complicated as to how the Chinese managed to achieve this. One of the many reasons is that most of the banks in China are still national banks. They do not sell their housing loans to other entities and are more susceptible to government interventions and persuasion.
With that in mind, there is no denying that the real estate market in China is still a roller coaster ride for the past two years. This phenomenon is evidenced by the rise and fall of stock prices of E-Housing Holdings (NYSE), a top Chinese residential brokerage firm that is publicly traded in the U.S. Its stock value has increased 136% over the past 12 months and yet slipped 32% from the high in last August recently. Government forces definitely play the visible hand in this market.
On the 7th of January, 2010, the office of China’s State Council issued a notice regarding how to promote the stable and healthy development of real estate market. The notice brought eleven points to the attention of all the subordinate agencies and local governments as follows.
- Speed up the construction of middle to low priced medium to small housing units.
- Increase the supply of residential lands and the efficiency of their utilization.
- Rigorously execute discriminating lending interest rates for second housing loans.
- Continue the implementation of differential rates for property tax.
- Tighten risk management of housing loans.
- Continue to regulate the market order of real estate trading.
- Further strengthen land supply management and real estate sales management.
- Strengthen market surveillance.
- Strive to solve the hosing problems of 15.4 million low income families by 2012.
- The central government will increase the subsidy to affordable housing in the mid-west, improve the processes of subsidizing housing and ensure the efficacy of the funding appropriated by the central government.
- The provincial and county governments are responsible for stabilizing the housing market and solving the housing problems of low income families.
There are a lot of debates about whether there is a bubble in China’s real estate market. Bubble or not, Chinese government has been very explicit in their intention of regulating the market order for real estate trading all along. The State Eleven is just another example and its effect remains to be seen.