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2014-06-01

Ministry of Housing: Let The Invisible Hand Do Its Job

The headline and wording sound like typical bureaucratic speech, but the message from the new Ministry of Housing fact-finding mission is: there will be no government pressures on the housing market, but there will also be no rescue. Literally: "respect the law of the market."

A little background: the Ministry of Housing recently got a new chief, Li Keqiang's hand picked man. Also, the fact-finding results aren't surprising as the message was conveyed in the small group meetings between MoH officials, local government officials, property developers and industry insiders held in various cities. See: Ministry of Housing Wants The Market to Regulate Housing

While the MoH will recommend to the State Council that the market be allowed to work, local government policies will be respected. This likely means buying restrictions will be eased, indirectly at first as seen most recently in Haikou, but possibly eliminated in future.

One focus is inventory. The key indicator for deciding on a local government's easing or tightening of real estate policy is inventory. At the end of 2013, MoH leaders proposed local governments with huge inventory should consider the problem of how to quickly digest it. For example, the city may limit sales of new homes in order to stop the increase of inventory, in order to maintain a completely smooth market. Since then inventory has been an absolutely crucial indicator for local government real estate regulations. The result is that the rate of inventory growth is slowing.

While the government will allow local governments to adjust some regulations, they must bear the responsibility. Nanjing officials told the MoH that if credit support is in place, price regulation (i.e. declines) will speed up inventory digestion. The MoH said they must fully respect the market adjustment in the current real estate market.

Du Sheng Zhong, a researcher at the China Real Estate Research Center, said local governments won't hastily cancel or ease buying restrictions, instead they will detour. He said directly easing the buying restrictions will put the local government in the spotlight, instead they will take indirect steps to increase demand. Centaline's Zhang Dawei said they can take steps such as adjusting the hukou, social security, taxes other regulations. (Exactly what was done in the Haikou situation linked above.)

The buzzword from the report is "two-way adjustment," the government responding to market forces as mainly represented by inventory. The President of the China Real Estate Chamber of Commerce, Nie Meisheng said, "The aim of two-way adjustment is to maintain stability, keep the market from overheating or overcooling, but today most markets are overheated. According to the top level plan to allow the market to regulate, local governments will abandon market interference step-by-step and allow market forces to become the main method of regulation."

My take: investors have already exited the market in many cities. The key adjustment is the hukou reform. I discussed it here.

Many Chinese in Beijing and Shanghai are not much better off than actual foreigners living in these cities in terms of their ability to get their children into schools and gain access to government services because they cannot obtain residency. Since residency entails access to social services, many wealthy and established cities are hesitant to extend residency. In other places, such as development zones or poorer cities, residency may be given with the purchase of a home.
The Haikou article gives a good example: the policies in place to obtain residency in Haikou are similar to those of immigration policy: buy a house, be highly skilled, etc. And that's after they eased the policy.

Another big plus for easing residency requirements is that hukou reform is a major policy goal of Li Keqiang. Furthermore, residency reform will bring in home buyers, not investors and house flippers who are quitting the market anyway.

Therefore, with the MoH telling everyone to let the market do its job; telling local governments that if you change policy, you're on the hook for the results; with the central government reiterating that no stimulus is coming; and with the market clearly slowing and investors scarce; the only policy that has any hope of arresting the decline and not getting a local official in trouble is easing residency rules.

More on hukou reform: China: Urbanization and Hukou Reform



住建部汇总调研结果:楼市调控将不刺激不打压
The basic powers caliber "respect laws of the market" will become the next stage of policy, local governments will also develop targeted policies are respected

Experienced major cities around the week after the investigation, the Department of Housing and Urban-Rural Development (hereinafter "the Ministry of Housing," below) has embarked summary relevant circumstances, the formation of the research report and at the appropriate time to report to the leaders in charge of the State Council. This will be decided for some time real estate control policies caliber of the key.

According to research collected by the situation, the Ministry of Housing will also be presented to the next stage of the real estate policy recommendations related to the leadership of the State Council in charge. If nothing else, "no pressure, no stimulation," "respect laws of the market to adjust to the role of the real estate market" and "strengthen market surveillance, prepared to deal with the program", etc. The next stage will be the basic caliber real estate market policies.

Meanwhile, the local authority to develop targeted policies according to their own situation will be respected. Correspondingly, the vast majority of local governments for the most "sensitive" the purchase of policy issues, are more likely to adopt "detour" attitude, "challenge" type of purchase of the policy adjustment mode will exit center stage in the next period of time.

Summary of results to be reported

Accordance with the established working arrangements, the Ministry of Housing, after the completion of the work summarized research materials will be pursuant to the deputy premier to report.

"As far as I know, there is now the Ministry of the circumstances of the research are summarized to form a complete set of materials, the leaders in charge of the State Council to report." May 29 morning, nearly an authority to the Ministry of Housing, " China Business News "told reporters that the relevant report will be carried out at the appropriate time.

Recently, the Ministry of Housing to send [ News Price apartment Review ] out multiple research groups, go to Nanjing Yangtze River Delta, Pearl River Delta, Shenzhen and other cities to conduct research thoroughly, understand the relevant local real estate market conditions, and other aspects of the policy. In mid-May 2014, this research work has been gradually end, turn into an aggregate level research materials.

Summary of the research and work materials, the basic overall arrangements by the Ministry of Housing and Real Estate Market Supervision Department is responsible for implementation. In accordance with the planned work, after the completion of a summary research materials, will be the first within the Ministry of Housing to report, a number of the Ministry of Housing insiders told reporters after his post Ministry of Housing, Chen Gao is very concerned about the real estate market changes and circumstances, many times requires daily monitoring of relevant departments to strengthen efforts to ensure the overall stability of the real estate market.

Reporters learned that, in accordance with established working arrangements, the Ministry of Housing work after the completion of the research summary materials will be pursuant to the deputy premier to report.

Division of labor according to the State Council, Politburo Standing Committee, Vice Premier Zhang Gaoli in charge of the overall functioning of the economy and other aspects of the work, which shall include the real estate market. Before the beginning of the current government to perform their duties, when he Politburo Standing Committee, Vice Premier of the State Council Li Keqiang, Vice Premier of the four also in charge of real estate work.

Content At present, the Ministry of Housing summarized research materials, including "real estate market, the basic situation," "local real estate market, regulatory policy," "the basic situation of housing credit," "meet the basic housing needs of the situation," and so on.

"Inventory" will become a key factor

Inventory is so attention is actually related to the "two-way control" it. Real estate regulatory policies caliber of a city to relax or tighten the inventory is a key indicator that point, from the beginning, the Ministry of Housing also agree.

Whether it is in the process of each city's real estate market research, or in the summary of the research material in the process, the research factor is the city's "inventory" conditions are to be the focus of attention.

"The stock is so attention is actually related to the 'two-way regulation' it. Caliber of a real estate regulatory policies to relax or tighten the city's inventory is a key indicator, at this point, from the beginning, to live construction department also agree. "eastern province of Housing and Urban Construction Department officials declined to be named told this reporter that he had participated in the previous Ministry of Housing and research work.

March 2014, the country held two sessions during which the Ministry of Housing Minister Jiang Weixin , Qi Ji, vice minister in succession to the outside world "two-way control" of ideas. Reporters learned that this idea actually at the end of 2013 have been identified, but was not preceded by the concept of "two-way control" of.

The end of 2013, when discussing the 2014 real estate market regulation policies caliber and orientation, the Ministry of Housing senior leaders proposed in 2014 to strengthen the real estate market regulation policy relevance, Beijing, Shanghai, Guangzhou, Shenzhen and other real estate market supply and demand more prominent Cities must be strictly implemented, the implementation of real estate control policies.

"Leaders also proposed the Ministry of Housing, for those stocks larger cities, local governments should consider how to digest inventory as soon as possible, such as to limit the new batch of real estate sales, to avoid further increase inventory and so on, to ensure a smooth overall real estate market. So, since then, inventory has become a crucial measure of local government property control policies caliber. "(see newspaper December 30, 2013," the Ministry of Housing northward named Guangshen strict control ")

In the first half of 2014, real estate stocks larger cities have begun to adjust local real estate policies to speed up inventory to achieve the goal. BOCI research report that as of the end of April 2014, fifteen new cities salable area 4,072,000 square meters, an increase of 18.9%, three-month moving average of the number of months to 16.9, up 0.3 from the previous week, 3-month moving average wholesale ratio was 1.43, up 0.1 from the previous week.

"No pressure, no stimulus"

Bidirectional control policies focus is to maintain the role of market stability and avoid overheating or too cold, at the time, most of the city's real estate market is overheated.

In summary the city related materials research, while the Ministry of Housing will also make recommendations to the next phase of market regulation policy of the State Council. If nothing else, in order to maintain control policy stability and continuity "no pressure, no stimulus" will become the basic caliber for some time the real estate market regulation policies.

"This is actually the beginning of adhering to determine targeted policies to strengthen and perpetuate the idea settled, respecting the autonomy of local governments to control to some extent." China Real Estate Research Center 杜胜忠 told reporters that this is actually the responsibility for regulating the pressure to local governments. If due to the adjustment policies led to instability in the local real estate market conditions occur, they have to bear the responsibility of local government.

Reporters learned that, in the research process, Nanjing and other cities to participate in the forum business people have suggested that if the credit policy support in place, the price adjustment developers can improve inventory to speed. And during the forum, the Ministry of Housing to participate in the discussion, said adjustment shall fully respect the role of market rules in the current real estate market.

"Under this policy caliber, local government will not rush to cancel or relax the restriction policy, but will detour." 杜胜忠 told reporters that directly relax the restriction placed on local government will put the focus position, while increasing market demand through other means of implementation.

Central Plains real estate market research director Zhang Dawei told reporters, through other means, can achieve the same effect of deregulation purchase. For example, some cities settled by relaxing the conditions; adjust social security, tax paying age, etc., to increase the number of qualified buyers. These can achieve the purpose of increased housing demand.

"Two-way control policies focus is to maintain the role of market stability and avoid overheating or too cold, at the time, most of the city's real estate market is overheated." President of the National Federation of Real Estate Chamber of Commerce Niemeisheng said, "in accordance with market regulation The top-level design, while maintaining the stability of the market, some local administrative means intervention will gradually leave the market means will become the primary means of regulating the market. "

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