High housing prices can be seen as a form of tax, argued Li Xunlei, chief economist with Zhongtai Securities, as citied by
China Think Tanks, an opinion site run by the Development Research Center of the State Council.
Among the Chinese government’s fiscal revenues, real estate-related taxes accounted for 45 percent at its peak (reduced to 30 percent in 2016). Investment in infrastructure and real estate take up around 40 percent of China’s total fixed-asset investments, according to Li, who said that they have significantly assimilated the excessive production capacity of the country’s raw material industries.
While contributing significantly to China’s infrastructure expansion, Li said, high land-selling charges are also a major reason behind China’s rocketing housing prices. That’s why, he added, regional governments have hesitated to curb house prices.
Stable or rising house prices are very important for stabilizing government revenues and the overall economy, Li said. Falling prices could have a huge impact upon the country’s financial system, as the assets of both trusts and commercial banks are massively tied up in mortgages, according to Li.
In an attempt to both prevent a real estate bubble and achieve economic growth, the government is unlikely to resort to strict policies for curbing house prices, Li said. Nor is the government expected to increase land supply while fearing an excessive supply of residential houses in the future, he said.
Many have hoped that house prices would progress in an “L” shape, coming to a stable status after a gradual fall. But Li believes it’s very difficult. He said chances are much greater for house prices to continue to fall in the future. The demand is shrinking, and the government is tightening housing loan policies in an attempt to de-leverage. Both factors will weaken house buyers' price expectations, Li said.
Old Version
