Local governments are highly dependent on the real estate market and on income from land. Revenues from land sales account for almost 60% of their total revenues in 2019.
Proportion of revenues from land sales in total revenues, evolution from 2010 to 2019 (in 2019, the figures are for the first 10 months):
Investments in 2019 contributed to 46.98% of GDP growth, including 24.10% for real estate. Every week for 15 years in Western countries, we’ve been asking questions about the bursting real estate bubble in China, people forget the close link it has with the government (local and central).. If the sector collapses, China collapses. Thus the central government will not let the real estate sector fall. Instead, it has another problem – it has been ingeniously implementing measures since 2010 to curb price increases (see an example in Beijing).
It is lining its pockets
In addition, the sector is a major area of corruption, before Xi Jinping’s arrival, it was estimated that the amount of “grey commissions” equivalent to 20% of the sale price of a new house was 20%, the amount seems to have fallen, but it remains substantial. Indeed, more than 40 authorisations are required from purchasing the land to selling the property. So many people have an interest in seeing a prosperous market… So what is the government doing after the epidemic?
Stability is the key word.
In recent weeks, there have been questions about whether new measures and taxes or provisions to stimulate the sector are on the way. Li Keqiang, in his speech on the 22nd, spoke about the sector in a few words (81 characters) calling for stability and pushing back speculation. The report stresses the need to direct loans to SMEs, which need help, to strengthen controls and to ensure their proper use. It is true that some loans had not gone in the direction intended (see article on Shenzhen). In any case, the real estate market has not calmed down (see here).
24 May 2020