Land Price Bubble Driven By Local Govt Revenue, Growth Needs

Land finance is a core funding mechanism for local governments, supplying about one-third of revenues. The funds are used for infrastructure investment. Without land finance, there's little funding for investment. Developers don't want to build apartment buildings in corn fields if the government isn't building hospitals, schools and subways. Local governments have a strong incentive to drive up land prices and real estate development.

Land finance is at the heart of local government. 2014 without considering land finance, land finance contributed 35.63 percent of local revenue. 2015 state-owned land use right transfer income reached 4.26 trillion, 2003--2015 years than the land transfer payments and local general budget revenue an average of 49.74%. 2014 Tax and land, real estate association representing local general budget revenue is close to 28%. 2015 total local debt 18.4 trillion in land financing 3.68 trillion.

Objective understanding of the positive role of land finance in mobilizing local initiatives to promote economic growth, improve the urban public infrastructure. Local government through low-cost collection of agricultural land, the low price of the transfer of industrial land, high prices to sell commercial, residential land, while stimulating investment, on the other hand to obtain high land finance to make up the financial gap. A huge amount of land transfer income used for land acquisition and relocation compensation, land development, urban construction, infrastructure construction, has become an endogenous logic of China's economic development.
The economic slowdown in 2014-2015 was a transition away from this development model, and the rebound over the past year was a step back for the Chinese economy. Now another step forward is at hand.

iFeng: 地王之迷:来自地方土地财政视角的解释

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