Real estate cauldron cooled by dousing rising land prices

STATISTICS SHOW THAT land prices in major cities have dropped year-on-year for the last four months in a row, while housing prices have risen slightly. Last month, the growth in the average housing price surpassed the growth in the price of land price for the first time since May 2016. Beijing News comments:

The price of land had been increasing since 2003 boosting the fast increase in housing prices.

That the housing price in some developed countries has largely remained stable is because the land price accounts for a comparatively low proportion of the housing price — 20 to 30 percent in the United States, 20 to 22 percent in Sweden and 25 to 38 percent in the United Kingdom for instance, so that the supply-demand relations are the main determinant of the housing price.

On the other hand, the real estate crisis in Japan in the late 1990s was primarily attributable to the close interrelation between the price of land and housing, as the land price accounted for about 60 to 75 percent of the housing price — it was as high as more than 80 percent in Tokyo.

China should draw lessons from this, as bringing down land prices and thus housing prices is necessary to prevent the realty market from derailing.

Taking away the firewood from under the cauldron is always a more effectual means to stop the soup from boiling over rather than just scooping out some boiled soup and pouring it back in later.

Thus the capital chain has been tightened to dampen developers’ passion for expensive plots. In the first seven months this year, the first-tier cities have witnessed 13 abortive land auctions, a new high since 2012.

It is predictable that if the authorities continue to tighten the financing environment for developers while increasing the supply of land, the land price will draw nearer to a rational level, which will vent the upward pressure of housing price.