Real estate market (China)

from Wikipedia, the free encyclopedia

As an entity of the real estate industry, the real estate market in China brings together supply and demand for immovable property (e.g. land, buildings) within the People's Republic of China . Real estate in China is developed and managed by public, private, and government red-chip companies .

History of the real estate market in China

Real estate market in China from 1949 to 1978

Since the People's Republic of China was founded in 1949, housing, especially for civil servants, has been organized by the state as part of the Chinese social system. Both private house building and speculative building were restricted in the course of communism in the years after 1949 and the private rental sector was systematically brought under the control of the state. Between 1949 and 1990, 1.98 billion square meters of housing were built in Chinese cities: 1.73 billion (87.4 percent) were built by the public and collective sectors and only 0.25 billion square meters were built by the private sector.

In the Chinese social system, many city dwellers were therefore dependent on the government's social buildings . All public housing was therefore freely distributed among public sector employees. No deposits or other payments were required before the tenants moved in . In addition, very low real estate rents were calculated from 1949 to 1990 : between 1949 and 1990, rents in most Chinese cities were only 2-3% of total household income . Most of the private housing that exists today was not built until after 1978, when the government began promoting private housing.

Real estate market in China from 1978 to 1998

In this socialist system , problems such as insufficient number of apartments, insufficient investment, unfair distribution of housing, and poor maintenance of apartments and houses have increased. As a result, there were reform efforts under the new President Deng Xiaoping .

In 1979 a first experiment on private housing construction was carried out in the cities of Xi'An and Nanning , but only 18 of the 39 newly built apartments were sold due to the population's lack of purchasing power . In the years from 1982 to 1985, a new experiment was therefore carried out in the cities of Changzhou , Siping and Sashi , where private apartments were subsidized one third by both the buyer's employer and one third by the government. As a result, the number of purchases rose, but was quickly classified as too costly and consequently discontinued. For this reason, a third experiment was carried out between 1986 and 1988 in which the rents of civil servants were increased, thus increasing the incentive to buy apartments or houses and also to relocate residents who lived in too large accommodations and who cannot get the accommodations because of rising rents could do more. In this way, the state was able to reduce the fixed costs such as maintenance costs for the houses it maintains by selling residential property and further privatize the real estate market .

The real estate market in China is the largest real estate market in the world today. It has grown rapidly since the central government's housing reform in 1998.

Real estate bubble 2005 to 2011

However, from 2005 onwards, a real estate bubble developed in the Chinese housing market due to the lowering of interest rates on bank loans and the associated increased issuance of these, which simplified the construction and purchase of real estate . This bubble was increasingly strengthened in the course of the financial crisis of 2007 by a massive stimulus package launched by the central government . In the course of this economic stimulus package, investments were made in the real estate market - the central government thus artificially pushed up demand . Evidence of a nascent bubble was cited in the significant number of vacant commercial and residential properties and continued construction of real estate despite this fact. In response to fears of a bubble, Standard & Poor's cut its outlook for China's real estate sector from stable to negative in the summer of 2011 after credit conditions in the country tightened and sales slowed.

Against the statement that a bubble is forming in the Chinese real estate market, some experts such as Ashvin Ahuja and Lilian Cheung argue that the strong growth is limited to the economically strong coastal regions, where there is a lot of immigration and so demand has naturally increased.

Housing market

Between 1995 and 2015, the total investment in housing by the Chinese government increased from a cap of 50,000 renminbi to a cap of 5 million renminbi, showing a renewed interest in housing development by the Chinese government after years of limited funding for the urban housing projects. In March 2011, the Chinese government announced the goal of building 36 million residential units by 2015. In September 2011 alone, 1.2 million units were put into operation in China; 70% more social housing than in 2010. These state-allocated construction projects affect construction labor market in China. In 2014 alone, 29 million people were employed in urban construction companies in China.

Real estate market

The land policy of the People's Republic of China has changed dramatically since its inception - land transactions were categorically prohibited by the constitution in the past and land was centrally administered and allocated. Land was not viewed as a commodity or an investment . As a result, industrial plants and warehouses now take up a lot of land in cities like Shanghai (30.54% of the total area) due to the allocation of land use rights by the central government . In comparison, Hong Kong has an industrial and warehouse land use rate of 5.3%. These land use patterns are the result of the industrialization policy of the People's Republic in the 1950s and the preceding land reform in 1949, which brought all land into state or collective ownership. The development of urban living space has been neglected for a long time and has led to inadequate infrastructure , a poor housing market and a deterioration in the urban quality of life. This can also be associated with the assignment of land use rights to socio-economic units, the so-called Danweis . Since the land reform of 1949, all land in the provinces has been collective property and land in the cities is state property, divided among the Danweis. In addition, according to the constitution, their land use rights could not be passed on either and much of the area was not used optimally.

Since 1983, the People's Republic of China has launched a series of land policy reforms to improve land use efficiency , streamline land allocation, improve land management, and coordinate urban and rural development. These land policy reforms have positive effects on land use in cities as well as negative socio-economic consequences . On the positive side, they have contributed to improved land markets, increased government revenues for funding massive infrastructure projects and the provision of public goods, and improved the rationalization of land use. On the negative side, they have created problems such as the growing gap between rich and poor and increased corruption .

The 1983 reforms introduced land use rights that can now be purchased. However, land ownership is still reserved for the state only.

taxation

According to the Constitution of the People's Republic of China, the state owns all of the land in urban areas, while collectives own the land in rural areas. Therefore, property owners in urban areas have home ownership , but not the land on which are their property. The state grants city dwellers and companies land use rights and charges for them. Because of this separation of land ownership from real estate ownership, China has two types of property taxes: home ownership tax (fangchan shui) and land use tax (tudi shiyong shui).

Land and land use taxes in the People's Republic of China were first created in January 1950 when the State Council proclaimed the "Principles of Taxation and Finance" (Quanguo Shishou Shishi Yaoze). On September 15, 1986, the State Council announced Property Tax Ordinances (Fangchan Shui Zanxing Raoli). These ordinances came into effect in all Chinese cities on October 1, 1986.

Local property tax is waived quarterly or semi-annually for owners or tenants. Buildings and furnishings are subject to tax . In the case of rental properties, the tenants are responsible for paying property tax. The tax is 12% of the rent. For a property that is used by its owner, the tax is calculated based on the property's "original value". The "original value" of a property is defined either as the construction cost or the original transaction price. In the case of properties that have inappropriate "original values", the local tax offices examine and determine their "original values".

The land use tax is levied on land users. The tax is calculated based on the land area and the tax rate for that country. The area of ​​the land is measured by local authorities and shown on a land use certificate for individual land users.

corruption

The real estate industry is one of the most corrupt industries in China today. According to the State Council, corruption takes place mainly in the process of land transfers and in construction . Corruption is mainly found in two institutions: local governments and local land management offices. This is because the local government has the power to distribute land use rights, while the land management office is responsible for making these transfers. The central government's land allocation system allows land to be transferred for free if the project is intended for public or non-commercial purposes.

This enables corruption cases such as the so-called Mu-Ma case: The local party secretary of Shenyang Mu Suixin and the local mayor Ma Xiangdong had property worth 350 for a sum of RMB 2 million and USD 170,000 for a member of the local mafia leader in 1999 RMB million awarded free of charge. Mu and Ma were tried for corruption in 1999.

Foreign direct investment in the Chinese real estate market

The progress in the reform efforts of the Chinese central government has led to an increasing number of foreign direct investments, especially in the high-class real estate segment, in the Chinese real estate market. Since the 1980s, the Chinese central government has therefore developed a series of laws on foreign direct investment. Under the “Equity Joint Venture Law”, land use rights have been issued to foreign investors since 1979 . From the 1990s onwards, foreign direct investment was increasingly regulated. In 1997, for example, the “Catalog of Industries for Guiding Foreign Investment” banned investments in the development of large estates, golf courses, amusement parks and national parks. In addition, the locations where foreign companies could invest in large plots of land were limited to the free trade zones in the coastal regions. However, China's accession to the WTO in 2001 eased these restrictions imposed by the Chinese central government.

On October 1, 2007, a new law for the renewal of land use rights and the registration of immovable property rights came into effect in China. This catalog limits the possibility of investing in high quality real estate segments and the powers of foreign real estate agencies and brokerage firms.

Individual evidence

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