Can hukou reform save Chinese property?

Cross-posted from Investing in Chinese Stocks.

In the latter two stories, there is emerging trend of easing real estate restrictions based on residency. One of Li Keqiang’s main policies is reforming the hukou system, a rigid system in which your local residence is more akin to national citizenship than state or provincial residency in most nations. Many Chinese in Beijing and Shanghai are not much better off than actual foreigners living in these cities in terms of their ability to get their children into schools and gain access to government services because they cannot obtain residency. Since residency entails access to social services, many wealthy and established cities are hesitant to extend residency. In other places, such as development zones or poorer cities, residency may be given with the purchase of a home.

China: Urbanization and Hukou Reform

Resolving who pays for reform is one of the key challenges. Since a major tax overhaul in 1994 local governments have been left with a substantial gap between the amount of tax revenue they receive and their spending liabilities. It is estimated that while local government is responsible for around four fifths of expenditure they only receive half of this from tax.

This disparity has forced local officials to devise alternative ways of funding their spending obligations. Many cities have resorted to the socially destructive practice of illegal land seizures. However, with the amount of available land diminishing local governments have been piling up debt. When combined with the liabilities arising from the credit-fuelled infrastructure stimulus of 2008/9 local government finances are now in a parlous state.

Consequently local governments are deeply opposed to hukou reform. A 2012 project led by the National Reform and Development Commission, which interviewed city leaders across eight provinces, found nearly all said their administrations could not afford the extra spending to provide public services to hundreds of millions of migrants.

Therefore if hukou reform is to be central to China’s new urbanization strategy China’s leaders will have to agree how to resolve the funding issue. Will fiscal policy be reformed to give local governments a greater share of revenue? Will a cost-sharing model be developed between central and local government? Will local governments be given new means of raising revenues?

China is speeding up its property tax, a necessity for generating revenue once land sales cool. (See: China pushes for property registration) As for residency, if the real estate rescue policies all entail letting non-residents buy homes, this could be a hint of hukou reform coming down the line. At the very least, it bears watching what policies the central government allows and which it does not at a time when local governments are coming under severe economic pressure and are in less of a position to resist central government reforms.

On to the news, the Ministry of Housing and Urban-Rural Development will have a new minister soon. It’s a tough job given the prominence of housing in the Chinese economy and the minds of the public.

“最难当的部长”:辽宁省长陈政高履新住建部 (The Toughest Ministry Post: Liaoning Province Governor Chen Zhenggao to head MHURD)

Not yet official, but widely reported in the press and insiders say, “It’s no secret within the Ministry of Housing.”

The news notes that Chen is known for tearing down shanty towns and rebuilding cities, something that is promoted as part of Li Keqiang’s push for urbanization, affordable housing, restoration of old cities and tearing down of shanties.

It is a tough post. On current minister Jiang Weixin:

During 2013 two sessions, real estate regulation “five new rules” introduced, immediately sparked widespread concern in the market. The Minister of the Ministry of Housing and CPPCC member Jiang Weixin coming out of his hotel for an appearance in the CPPCC, was subjected to a large number of media reporters containment, questions can simply use the “indiscriminate bombing” to describe. Jiang Weixin overwhelmed frequently to reporters pleading for his life, I hope you “Do not ask again.” In the first day of the meeting, Jiang Weixin, Minister again encounter one day 3 containment, and eventually silence.

2014 two sessions, bear reporters Zhuidu of Jiang Weixin, still Cherishing such as gold. But he’d squeezed out of this “two-way regulation” words, which is considered to feed the media reporters.

But regardless of any minister who is destined to be subject to local government “land finance”, while the face of “liquidity” but hands-free “property rights”, the current status quo in central China, the ministry is hard to change the power structure in . For Chen Gao, the “price” is always going to be a difficult problem, affordable housing and urban redevelopment or will become its breakthrough achievements.

Full Article: “最难当的部长”:辽宁省长陈政高履新住建部

Also out today, Nanning, capital of Guangxi province, fires the first shot with an easing of real estate buying restrictions.地方救市第一枪打响:南宁官方正式下文松绑限购

The policy change allows people without residence permits in Nanning to buy homes, but only if they live in nearby cities.

Xinhua Beijing April 29 listing (Reporter Zhu Ling) yesterday evening, Nanning City Housing Authority issued a document called: According to relevant regulations, “Zhuang Autonomous Region People’s Government of Guangxi Beibu Gulf Economic Zone to promote the opening up and development of policies and regulations”, combining ” Guangxi Beibu Gulf Economic Zone to promote city development plan “spirit, from April 25, 2014, Beihai Guangxi Beibu Gulf Economic Area, Fangchenggang, Qinzhou, Yulin, Chongzuo residence households can join permanent residents of Nanning in buying homes.

English coverage here in Reuters, but it only mentions the Economic area as being allowed to buy property: China city loosens property rules amid market cooling

The maps below show the cities mentioned in the Chinese article are the main cities to Nanning’s west, east and south.

20140429nanning
20140429nanning2

Related: The City of the Dead: The ghostly Chinese town filled with luxury properties that nobody lives in

Google Translated Chinese article:

yesterday evening, Nanning City Housing Authority issued a document called: According to relevant regulations, “Zhuang Autonomous Region People’s Government of Guangxi Beibu Gulf Economic Zone to promote the opening up and development of policies and regulations”, combining ” Guangxi Beibu Gulf Economic Zone to promote city development plan “spirit, from April 25, 2014, Beihai Guangxi Beibu Gulf Economic Area, Fangchenggang, Qinzhou, Yulin, Chongzuo residence households can refer to permanent residents in Nanning policy in Nanning purchase.

Shanghai E-House Real Estate Institute researcher Yan Yuejin think, Nanning “relaxation” restriction , essentially not consumed inventory. The strategic position of Guangxi Beibu Gulf Economic Zone is obvious, but how to achieve such a reasonable allocation of the regional population, capital and other resources and enhance the economic zone heat accelerate the natural need strategic thinking. Therefore, Nanning purchase deregulation, more emphasis is to remove the administrative shackles, the release of the economic circle of purchasing power.

According to the latest data CRIC database, Nanning on April 27 in the housing stock of 5.46 million square meters, a total of 48,900 sets. Prior to the first quarter of Nanning 1.62 million square meters of real estate transactions. Yan Yuejin said, according to the market’s ability to digest a quarter of the current inventory of Nanning approximately 13.5 months, which is not too high.

Yan Yuejin also believe that, as the capital of Guangxi, Nanning gathered a lot of land and investment resources, the future of high-speed rail as highlighting Nanning Economic Circle, which will purchase the entire market policies proposed deregulation of interest demands.

Recently a “country 23 provinces ‘financial dependence on the land’ ranking report” shows that the size of the land sinking only 700 billion yuan in Guangxi, but the land debt service ratio as high as 38.09%. The report analyzes that the main local debt growth in the first municipal government in Guangxi, and debt payments in land purchasing and storage spending large, and in the actual economy, local government investment in land purchasing and storage of large, land revenue will particularly dependent. As early as in 2010, one of the king Nanning floor price broke through the 10,000 yuan / square meter.

No doubt, this is the first official release of the adjusted purchase documents. Earlier in succession came the Wenzhou, Changsha, Hangzhou and other cities in the brewing relaxed restriction, the last are rumors. Just yesterday, will implement differentiated Tianjin Binhai outgoing purchase, as long as no room in the coastal range to buyers in the District, but no official document issued

Gao Hua Securities believes that the restriction is not enough to relax and restore the balance between supply and demand of the industry. Because the impact on investor trading volume depends on the price rise is expected, however, rising prices seem to run counter to the economic reforms so far have been rising house prices. If this policy is not expected to pay too loose, then the boost trading volume effect may be temporary.

More rescue policies may come in the second half of the year: 多地调研房地产救市措施 楼市下半年或迎来调整窗口期 (Many local governments study real estate rescue measures)

The evening of April 13, an “on the promotion of the healthy development of the real estate market continues to ten measures” (hereinafter referred to as “Min ten”) in the widely circulated, exacerbated the real estate market is expected to bidirectional regulation.

“Min ten” in the purchase, credit limit and other aspects of the 10 relaxed regulatory policies, but the rumor by government investigations, and related media, which “considered an internal draft.” Allegedly, the “first collected the views of the developers, and then studied to see.”

After this year, two of the country under the “two-way control” policy guidance, high inventory levels in some cities often tentative policy baseline, have developed regulatory policies, but so far no one dare “stands out.” Appropriate policies are in the “research”, “feedback” stage.

Although there is no “eat crabs,” but temptations have done the groundwork for future policies.

Local government anxiety

April 22, Wuxi Municipal Government issued the “on access, Wuxi hukou registration requirements of the notice” (the “Notice”) stipulates that from 1 May 2014, Wuxi City area (including Wuxi city and Jiangyin, Yixing Second City) implementation of a unified household registration entry registration requirements in Wuxi purchase complete sets of commercial housing (including second-hand ), the average floor area of 60 square meters or more, and have a stable job in the city staff, grant themselves, their spouses and minor children to tin settled.

Wuxi City since 2003 carried out the reform of housing hukou system. Then settled foreigners purchase policy is 100 square meters. 2012 New Year’s Day, Wuxi, account access policy with the new adjustment, foreigners purchase settled threshold from the original 100 square meters to 70 square meters.

And the “notice” will further lower the standard, from 70 square meters to 60 square meters adjustment, although the gap is only 10 square meters, and is not associated with the current local government regulation, but it was widely interpreted as a “curve rescue “, indicating that market participants already is” and boots landing “mentality.

Behind this attitude, after the stock surged, the regulation of various cities tempted hand.

April 16, the National Bureau of Statistics released a quarterly housing data, the end of March, real estate for sale area 520 million square meters, compared to 2013 increased by 30 million square meters. This is since 2005, the highest value of real estate held for sale area.

2014 onwards, the national real estate sales and sales growth has declined for three consecutive months both. National Bureau of Statistics data show that in the first quarter, 201 million square meters of commercial housing sales area, sales of 133 million yuan, down 3.8% and 5.2%, respectively, of which residential sales area, the amount decreased 5.7%, 7.7%.

In addition, real estate development and investment growth also declined in the first quarter, the national real estate development and investment 1.5339 trillion yuan, down 2.5% qoq growth.

This part of the inventory of already high city is very painful.

Wenzhou price 32 consecutive months, the year before last year, GDP grew at only 6.7%, 7.7%. The degree of dependence on the land throughout Zhejiang ranked first in the country’s finances, Hangzhou, Wenzhou property market down, will further affect revenue.

Wuxi is also true. Official statistics from Wuxi, as of the end of December 2013, Wuxi City real estate stocks increased to 17.27 million square meters, the removal is not currently for sale, but estimates have been put into use in non-residential area of ​​about 200 million square meters, the stock room to go Nearly three years of the cycle. Real estate transactions in the first quarter of this year, Wuxi 10716 units, down 24.12%, 22.16% reduction in transaction size.

In this case, although the Government has not introduced around the bailout policies, but related surveys and comments, it is clear already that may arise subsequent downturn made emergency preparedness.

Ambiguous prelude

“Wenzhou before and after the two sessions, led by the Municipal Construction Committee, drafted a comprehensive plan to adjust the purchase reported to the provincial government, but so far not below, the provincial government could not even recognize the external program received.” People’s Congress of Zhejiang Province, Wenzhou SME Development Association president Zhou German to Chinese Real Estate News revealed reporters.

A Wenzhou executives admitted that housing prices, Wenzhou bailout of dystocia is not surprising, the current round of calls for the purchase of deregulation began in Wenzhou, but due to its sensitivity too, is destined to Wenzhou will not be the first to be approved by the city. Earlier, the news about the new Wenzhou, Wenzhou will be relaxed, warm providers and buyers of foreign naturalization policies have been rampant, but was subsequently denied by local government officials.

In addition to Wenzhou, had heard about the charge of the bailout plan has Hainan, Hunan, Guangdong, Zhejiang and other provinces of the Office of Housing and Urban per capita that the current government did not mean to save the city, but no relaxation of market regulation plans.

April 21, Zhengzhou City Housing Authority said that the future will be based on the market situation may be, to purchase a timely policy adjustments. This news release makes Zhengzhou become the only official release of timely market regulation will loose city. But China Real Estate News reporter then learned from the Housing and Construction Office of Henan Province, the province will not introduce new policies recently.

After repeatedly denying that there have been new urban release relaxed regulation of the wind, the local government temptations unsuccessful execution stage classification regulation to cast a “unrequited love” colors.

“The government and game developers are, on the one hand the government has yet to find that step to save the city, on the one hand and barely particularly worried that some developers, the government has not yet determined, but also do not dare and central formal negotiations this matter. ” Sunac China [ Introduction News ] Peng, general manager of the Chinese real estate company in Hangzhou newspaper reporter said from the heart to really make government regulation to promote relaxation, may also need a process.

China Real Estate News reporter learned that the investigation, some cities in the Yangtze River Delta, the real estate control policies at the implementation level there are signs offside and loose. In some areas of Wenzhou, such as home buyers no more than two sets of housing, can then purchase, than either has several residential Wenzhou, Wenzhou buyers limited to purchase. In Hefei, outsiders year even without local social security, developers can also help introduce packaging company, with prices ranging from 15,000 ~ 18,000 yuan made the purchase and loan eligibility. Government issued a document, but acquiesced to such acts phenomenon has become an alternative for local classified austerity measures are not introduced before.

“The future will be bright tight dark pine is a main tone.” Zhang Huifang, general manager of Hangzhou win home marketing agency, said that many cities have begun to make adjustments to the purchase of the policy, the surface tight, but somewhat loose inside identified, has been formed around not written agreement.

Or adjust the window period ushered in the second half

Recently, the Hangzhou Municipal Government held a quarter of the economy in 2014 to analyze the situation in which, referring to the real estate market, said the current “still stable.” But Hangzhou Development and Reform Commission proposal to risks and actively prevent the real estate market, significant market rumors, the first time to clarify, stabilize market expectations. In addition, significant price adjustment policy is to establish a system for forecasting the real estate business, to ensure a smooth real estate market.

From the government’s perspective, the real estate market downturn, will directly affect the revenue. Jiangsu Zhenjiang New Area an investment [ Introduction News ] Bureau told China Real Estate News reporter: “Admittedly, on the one hand, there are now a large part of government revenue is by land, once the real estate market fell sharply, directly affecting the land auction, which is the local government does not want to see the other hand, investment is still an important task of the local government, from the current situation, housing prices are still around investment focus. ”

Determine the central idea of ​​the classification regulation, the regulation provides for local government deregulation policy basis, but in countries without explicit prior to the introduction of mentoring programs or articles of association, the local government wants to purchase deregulation, and depression, “there is no Zeidan Zeixin” the cycle of.

In addition, the current property market turned down, or short wait is uncertain. China Real Estate News reporter interviewed accepted industry generally believe that the real estate market will not be too serious crisis. This is perhaps the reason to suspend the current regulation. Once the bailout prematurely, it may for the subsequent introduction of the policy and industrial restructuring impact, not to mention the pressure from the central government level.

Therefore, a comprehensive consideration of various factors, or become the property later this year to fine-tune the window period. After the introduction of the second quarter of the data, if the downturn, rescue measures will be included at the central level of acquiescence and even support; addition, through market research and feedback, the corresponding rescue measures will be more perfect. And because no longer a “one size fits all” regulation, the idea of ​​local government regulation will not be relaxed or tightened single, but can be considered comprehensive and integrated development.

“On the one hand, the downward trend in the property market began to pressure the local finance and economic growth needs to gradually revealed; the other hand, under the guidance of the spirit of bi-regulation, where also need to adjust the time.” Vice president of the China Real Estate Association Bian hong deng told the media.

David Llewellyn-Smith

Comments

  1. I think Google translate has been drinking too much Plum Wine.

    “Although there is no “eat crabs,” but temptations have done the groundwork for future policies.”

    Are the crabs cooked or alive and snapping?

    Relaxing Hukou is clearly not as simple as it should be.

    Afterall, if someone moves why not just reduce funding to the local govt where they were and increase it where they move to?

    But if that doesn’t happen AND local govt finances depend on ponzi asset sales and prices then relaxing Hukou may have complex implications on a lot of things.

    – The financial model of local govt
    – The housing market
    – The taxation system
    – The relationships between levels of govt

    A property tax may have merits but generally property taxes and ponzi asset prices do not play nice.

    Unwinding a market that has grown on such a massive distortion as Hukou (and the model for govt finances that goes with it) might be impossible to do smoothly.

    How do you rationalise doing it gradually? Wouldn’t all Chinese want their registration restrictions relaxed?

    • Could mean the Chinese saying ‘the first one to eat crab’ – used when referring to pioneers.

      I think it’s based on an old legend of a town of rice farmers plagued by crabs eating the rice – the Chinese didn’t eat crabs (probably due to a dearth of other far more ‘easy to eat’ sealife like slugs/jellyfish/eel/etc.) – some General is said to have eaten one crab leading others to do so eventually leading to the eradication of the pest.

      Kind of makes sense in this context, although Google has missed the implied grammar.

      • Cheers

        I we need someone to be the first one to ‘eat cane toad’ – though a few do try to smoke them or lick them.