Building a stable realty sector

A fall in real estate prices in the next one or two years, however, should not be credited to the possible property sell-off by corrupt officials. Why? After 10 years of spectacular growth, China's real estate market has reached a stage where it is difficult for speculators to continue making easy profit. As the Chinese economy cools down and the risk of default increases, banks are becoming more reluctant to give loans to homebuyers. And with housing prices reaching a level that is almost unaffordable for ordinary people, the market is flooded by oversupply. These are real factors that will make housing prices fall.

The real importance of the property information registration system lies in its role as a preparatory step for the government to launch the property tax, which will increase the cost of land holding, deal a blow to speculators and provide a new source of revenue for debt-ridden local governments.

Speculations have been rife on when the property tax would be imposed. Technically, it is hard to levy the tax without having complete and accurate information on landed properties. So, the property tax can be introduced throughout the country only after a complete property information registration system is set up by 2017.

The move will also be in the favor of local governments. Until now, local governments have relied heavily on land sales and property construction and transaction taxes for their revenue, thus creating serious problems, like huge debt pile-up, for themselves. As a result, local governments have been complaining about reduced revenues owing to the cooling down of real estate market.

But once the property tax is introduced, local governments will have a new and stable source of income, and enough reason not to depend on land sales to balance their exchequers, which will profoundly change the way how local governments function.

The author is a senior writer with China Daily. xinzhiming@chinadaily.com.cn

(China Daily 08/30/2014 page5)