Reverse Auctions to adjust Property Market?

The Ministry of Land and Resources (国土资源部) has recently invited real estate developers and experts for participation in a real estate forum which is said to focus on a reform of the current land auctioneering system. A set of first-tier and several second- and third-tier cities shall be chosen as testing grounds for such a reform, writes Nanfang Daily, republished by China Accounting School Online (中华会计网校). Currently, a  landuse transfer goes to the highest bidder (土地出让“价高者得”). This system is now questioned for pushing the prices for such transfers, thus indirectly causing rising housing prices.

Instead of the highest bid, the lowest bid should count as the final bid (出价最低者将最终中标), suggests Li Yining (厉以宁), president of Guanghua Management College at Beijing University, and deputy director of the Economic Commission under the 11th National Committee of the CPPCC. Li seems to be advocating a reverse auction model, in which the sellers place their bids (i. e. offering landuse rights) – and the seller who quotes the lowest price will be chosen by the buyer.

Opponents warn that this could lead to low-quality delivered by the developers, and that such a new approach could breed more corruption. Nanfang Daily also mentions a possible loss of state assets, if landuse rights become cheaper – after all, the state is the owner of the land (hence “buying landuse rights”, rather than “buying land”). But Zhang Yunwen (张运文), Guangdong’s Provincial Real Estate Association’s deputy secretary-general, believes that although the income losses for city governments may not be small, stable housing prices were a government’s responsibility towards society.

Xinhua released six commentaries criticizing China’s high real estate prices, reports CCTV. Then again, Li Yining had issued warnings at the beginning of Beijing’s Two-Sessions season this year, too, and one may wonder if the struggle for stabilizing the housing market will be more efficient than the eternal one against corruption. If Victor Shih (史宗瀚), assistant professor of political science at Northwestern University, was right in March this year, the provincial and local governments will carry the day, which would torpedo the Ministry of Land and Resources’s goals. There is no reason to expect that the provincial governments will love the idea of reverse auctions any better than increases in property tax rates.

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Related
Singapore Academic Zheng Yongnian about Farmland Reform, October 17, 2008

4 Responses to “Reverse Auctions to adjust Property Market?”

  1. Unlike the US, where state governments can issue fiscal bonds to fund infrastructure projects, local governments in China are currently not allowed to do so. That’s why local governments have set up local financing platforms, such as urban construction corporations, backed by local government revenues, said Liu Shengjun, deputy director of the CEIBS Lujiazui International Finance Research Center. He added that land sales account for 30-50 percent of local governments’ revenues.

    http://business.globaltimes.cn/china-economy/2010-04/519528.html

    Like

  2. Thanks for the info (even if without an Erläuterung. While we are at it, this is what Wikipedia has to say about property tax.

    Besides, there seems to be no nation-wide system in effect. “Real estate tax (房产税) is one of the specific property taxes (财产税), Yunnan’s provincial government wrote in 2005, and only applies for commercial housing (经营性房屋) in rural areas and small towns (城镇).

    Anyway, they may be planning for something bigger. Which leaves the question where the local governments will their money from.

    Like

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