[photopress:property_development_in_Shanghai.jpg,full,alignright]Two of Beijing’s biggest real estate companies say that China’s attempt to reign in run-away property development is creating a host of unintended headaches for the industry.
Zhang Xin, chief executive of Soho China, said during a briefing at the Boao Forum for Asia, held in Hainan province, ‘Residential property has become very political. It’s not a business market anymore. The government is very responsive to the media. If there’s one “nail”, (this was the famous last stand building which was seen all over the world) the government needs to be seen to be responsive to public demands.’
The ‘nail’, rightly or wrongly, represents the country’s urban poor and working class being misplaced by large development projects in which dilapidated buildings are torn down for new tower blocks. Coupled with a desire to temper the country’s overheated economy, which grew more than 11% in the first quarter, government’s dislike of such international publicity inspired a series of national and local measures to control the market.
These have included higher transaction taxes, more stringent limits on mortgage lending, mandatory land auctions and restrictions on the construction of luxury flats and villas.
Purchases by overseas buyers have also been restricted. This, according to another developer, Ren Zhiqiang, president of Beijing Hua Yuan Group, is a development for which ‘there is no basis in law.’
Soho China has already made it very clear that it is turning from residential to commercial real estate projects. The restrictions on overseas buyers, who used to account for 10% of Soho’s sales, have also hurt the company. Ms Zhang said, ‘Beijing and Shanghai are trying to become international cities but foreigners can’t easily buy flats.’
Land auctions were mandated to limit opportunities for collusion between developers and corrupt municipal officials. While Ms Zhang and Mr Ren agree that transparent land auctions represent a welcome development, they have also had inflationary consequences.
Ms Zhang said, ‘The Chinese real estate market has become so capital intensive. Five to 10 years ago land was not bought through auction. You cannot do this anymore if you want Grade-A land in city centers. The dollar requirement up front is heavier and heavier. It has forced Chinese developers to go public.’
Soho China, controlled by Ms Zhang and her husband, Pan Shiyi, remains privately held but hopes to list by 2008.
Ren Zhiqiang argued that higher transaction taxes have also threatened at least one of the government’s broader economic objectives. He said, ‘They need to lower taxes to make the economy consumption-driven rather than investment-driven. It’s OK to make policy mistakes so long as you correct the mistakes.’
Source: The Financial Times