Sun, Jan 28, 2018 - Page 7 News List

Xi bets on an ambitious plan to make Chinese lifelong renters

Bloomberg

Chinese President Xi Jinping (習近平) has unleashed the world’s biggest experiment aimed at taming runaway property prices.

After Xi in October used the Chinese Communist Party’s 19th National Congress to push a housing model that emphasizes renting, a flurry of activity is under way by developers, banks, local governments and even the biggest stock exchange. The push is the first of a package of programs, including a long-awaited property tax, poised to unfold over several years to rein in one of the world’s wildest real estate markets.

“China’s property market is on the brink of tremendous change,”said Shen Jianguang (沈建光), chief Asia economist at Mizuho Securities Asia Ltd in Hong Kong. “The push for rental properties shows a new model is starting to emerge.”

Xi is leveraging his immense power to try to solve a problem that has dogged policy makers around the globe: spiraling property prices in major metropolitan areas that have fueled rising inequality. The aim seems to be a new market model, somewhere between the capitalist frenzy that sent home prices in Shanghai and Beijing rocketing ever higher and the communist system under which dwellings were allocated by work units.

Establishing a vibrant rental market will help to defuse the risks from “irrational” home prices, said Deng Yongheng (鄧永恆) of the University of Wisconsin, who helped carry out a study that showed a 1,538 percent gain in land prices in Beijing from 2004 to 2016.

The long-term effects could range from driving consolidation among developers to fueling consumer spending as people pay less for housing, UBS Group AG economist Wang Tao (汪濤) wrote on Thursday.

Around China, large rental complexes are being completed, under construction or in planning, and funding for such projects is being made available. The changes could alter developers’ businesses, shake up government revenue and help make more Chinese citizens, like Germans, renters for life.

In theory, a thriving rental market would add housing supply and help stabilize prices after a 13-year property rally. The old model that prioritized home ownership encouraged “a lot of speculation and crazy price gains — and that model is coming to an end,” said Rosealea Yao (咬麗薔), an analyst at Gavekal Dragonomics in Beijing.

City governments from Beijing to Shanghai have earmarked public land to auction to property companies that would develop rental projects only. Country Garden Holdings Co, China’s largest developer by sales, has announced plans to make 1 million units available over three years. Banks are offering credit lines to developers for financing rental projects and the Shanghai Stock Exchange is encouraging the creation of investment products backed by rental income.

Xi is trying to alter the popular belief that property is a one-way bet, as any short-lived declines in prices have inevitably been followed by booms.

Homeownership rates in China are among the highest in the world, at almost 90 percent, according to Cushman and Wakefield Inc.

People also buy young. Parents often help their sons buy a place as a prerequisite for marriage.

Rentals, meanwhile, have been a hard sell, in part because of limited tenant rights and the low quality of much of the stock, with some units even lacking their own bathrooms and kitchens.

Even if the new policies can help change that mindset, challenges abound. First, China’s leaders have to ensure they are able to tame the market without tanking home prices. They will also have to balance other underlying drivers pointing to slowing demand. And officials would need to drop an old habit of letting prices boom whenever the economy needs a boost.

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