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Annual Conference 2014, Boao Forum for Asia
Session Summary
Session 27
April 11, 2014
Real Estate: From Administrative Control to
Market-Oriented Reform
Moderator: WAN Li, Xinhua News Agency
Panelists
 JIA Kang, Director, Research Institute for Fiscal Science,
Ministry of Finance
 LI Xiaoming, President, DESEA Investment Holding Group Co.,
Ltd
 LIU Xiaoguang, Chairman, Beijing Capital Land Co., Ltd
 Chris MARLIN, President, Lennar International
 ZHANG Yuliang, Chairman, Greenland Holding Group
Key points:
 Property tax implementation is likely to factor in the length of
ownership and to exempt basic living space requirements.
 A rule for extension of land use rights is recognized as needed
to reassure owners.
 Any future decline in real estate markets will vary by market
segment, but the government will likely act if a broad-based
downturn is too steep.
 City complexes are defended as stimulating both consumption
and job creation.
 Some real estate developers may consider investing in
financial services, but only where profits are attractive.
 International expansion is about internationalization, not
abandonment of domestic markets.
The expert panel addressed many pressing issues for Chinese investors.
Moderator WAN Li of Xinhua News, referring to the Chinese
government’s shift toward market-oriented reform, asked Mr. Jia Kang of
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the Ministry of Finance to speculate on what steps would be taken in real
estate policy.
Mr. JIA focused on the shift from administrative control to market reform
(which he later reiterated as “a dominant role for the market”); property
tax reform (“as soon as possible”); and steps to increase homeownership
for low-income households. On the third item, he advised that 66 million
affordable houses should be built. People should own, not rent their
homes; and should be incentivized not to immediately sell their homes.
Property tax implementation
In response to whether property tax might increase the tax burden, and
what relevant rules might be enacted, Mr. JIA replied that the property tax
and the fee will be merged. The fees will be reduced through reduction of
the transaction fee as well as of commercial and property taxes. The
length of time in which the property is held will decide the sales tax rate.
During the holding period for high-end residential apartments, the tax rate
should increase with the size of the apartment.
Mr. JIA argued for equitable application of property taxes to owners.
Although the tax burden will not be high in the foreseeable future,
property owners should pay the tax. Irrespective of income levels,
exemptions will apply to the first property, however, the excess value of
high-end property and other second properties will be taxed, although
there are measures to exempt a certain proportion of space or area as
measured in square meters.
Residential markets
There were some diverse views among the panel on the outlook.
Mr. LI Xiaoming, President, DESEA Investment Holding Group
expressed confidence that housing development will progress stably and
soundly. He supported the view that the overall price level is being
supported by distinctive factors in each location that are driving real
estate purchasing decisions nationwide. He also challenged the notion
that a steep decline is inevitable, doubting that the government would
allow a steep price fall, in consideration of the likelihood that
property-owners would default on resulting underwater loans, and
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would not be satisfied with a hands-off government policy that allowed
such loans to default.
While Mr. ZHANG Yuliang, Chairman of Greenland Holding Group, did
not advocate government intervention in the event of a precipitous
decline across markets, although he regards such a broad-based decline
as unlikely. Specifically, Mr. ZHANG did not rule out sharp declines in
some markets depending on market segmentation, but he believed that
areas with large populations would not suffer serious price cuts,
especially those with dense clusters of services. However, he did not
expect prices to rise as rapidly as in 2013. In ex-urban areas such as the
Fifth Ring Road in Beijing, last year’s price increases of 50% have pulled
forward real estate demand, but that demand would not be the basis for
the next price increase.
On the issue of oversupply, Mr ZHANG believed a price reduction of 50%
was possible where supply was already excessive and out of balance
with employment and purchasing power, especially in regional cities.
Additionally, restrictive measures by the People’s Bank of China (PBOC)
could reduce liquidity in the residential loan market. If the PBOC were to
require commercial banks to reform their policies, these banks would size
up the cost of loaning money, and find other projects that would offer
them a better return with the result that commercial loans would draw
money away from the residential market.
Mr. LI saw market segmentation rather than specific districts and regions
as the key factor, and whether the location of the property was well
supported by services and amenities.
Mr. LIU Xiaoguang, Chairman of Beijing Capital Land, observed that the
health of the industry can only be assured when investors have learned
to look at the differences between and within residential and commercial
real estate properties, and the specifics of different properties, resources,
and services.
Chris MARLIN, President of Lennar International saw the situation as
similar to the U.S., where the most in-demand, land constrained
markets—San Francisco, New York City, etc.—did not experience
depreciation as extensively as in other parts of the U.S. He added that
real estate prices in these markets have bounced back strongly from their
lows.
Among the local market factors that Lennar looks at when investing, job
creation is especially important and it is targeting its investment in areas
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where jobs are being created. Mr ZHANG concurred that China’s
central government is increasingly aware of this dynamic.
Diversification into financing
The panel also looked at the matter of recent share purchases in banks
and financing channels by real estate developers.
Mr. ZHANG replied that real estate companies have a strong presence in
the financial sector. Investment banks are very profitable, and real estate
developers want to invest in these banks. He noted that each company’s
situation is different, and that they all face different considerations when
investing in banks. Mr. LIU was concerned that developers' interests in
investing in banks might be to expedite financing, and that it would be
more appropriate for them to invest in mortgage banks.
Mr. MARLIN noted that the practice of real estate developers investing in
banks was not favoured in the U.S. although developers would have
benefited from access to banks during the downturn. Mr. MARLIN also
mentioned the critical role played by the Federal National Mortgage
Association (FNMA or “Fannie Mae”) and the Federal Home Loan
Mortgage Corporation (FHLMC or “Freddie Mac”) in supporting home
finance in the U.S. through low-cost incentives, without which mortgage
companies in the US could not have survived.
City complexes enable China’s shift to consumption
The panel was asked to consider the oversupply of city complexes, and
the growing number of ghost cities and cities which lacked services.
Mr. LIU defended his company’s strategy of focusing on such complexes,
pointing to post-war real estate development in the U.S. as an example to
follow. It took the US half a century to supply homes to 200 million people.
China's challenge of catering to many more people should be considered
in this context. He also pointed to the transformation in Chinese
shopping habits over the past two decades as an example. In contrast to
earlier times when people went to shops to make necessary purchases,
nowadays going to the shopping mall is a social as well as functional
event which may include a restaurant, a movie, karaoke, or children's
activities. In many cities, the city complexes that offer these services are
still just being developed, and their creation would give rise to job
creation which might mitigate the societal damage that had resulted from
compensating farmers for expropriation of their property without providing
the means for their employment.
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Mr. ZHANG told of being personally invited by many governors and
ministers from overseas nations, each with the intent of attracting
investment to their countries, but advocated that the Chinese government
should turn inward, taking up the responsibility of nurturing the
environment for industry. City complexes, he said, could be very helpful
in this respect.
Using the US as an example, Mr. Marlin described the redevelopment of
the decommissioned Hunter’s Point military base in the city of San
Francisco, which had for 40 years sat unused, generating a blighted
neighbourhood. Lennar entered into a partnership with the government
which gave Lennar the land in exchange for a commitment to redevelop
the neighbourhood. The deal included bond issuance and sharing of the
tax benefits with the residents of that neighbourhood. While the scale of
this investment is unusual in the U.S., it is not uncommon at all in China,
and while there may be approaches that can be adopted, China should
ensure it customizes it approach for its particular circumstances.
Optimism for international expansion
The final area of consideration was overseas expansion.
Mr. ZHSANG described China Greenland’s recent investments and
outlook on the future, reporting investments in nine countries. He expects
RMB 20 billion in revenue this year and RMB 40 billion in the next, but
emphasised that it was not abandoning the domestic market, and was an
extension of its business, in line with the trend of Chinese companies
globalizing and, as such, China Greenland is not restricting its
investments to cities popular with Chinese travellers, will need to set up
an international team, find international partners, and generally
co-operate well with other markets. This will take time and there might be
friction that needs to be addressed but the company is very optimistic
about overseas markets.
Openness to extended land use
During the question-and-answer phase following the session, one
audience member asked whether the land-use period might be extended
to promote long-term investment. Mr. JIA answered that after the land
use right expires, it can be extended. Government will not confiscate the
building. However, it will be necessary to certify continued use, so that
the owners who have bought houses now can put their minds at ease.
Acknowledging that a rule for extension is needed, Mr. JIA said that the
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Ministry of Finance would push forward this logic, and deal with any
uncertainties.
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