Huang Qifan is the mayor of the southwestern China metropolis Chongqing and one of the country’s most well-known voices on property market issues. He is now spearheading one of the largest buildups of subsidized housing in China, which itself is undertaking one of the most ambitious social housing project in the world. It is important for social and economic stability in the world’s most-populous nation.
Over two hours on Nov. 25, 2011, the mayor spoke with Wall Street Journal reporter James T. Areddy in a boardroom adjacent to his office in the Chongqing municipal government’s leafy riverside compound. He discussed Chongqing’s goals for real-estate affordability, regulation and development, supporting his technocratic arguments with an array of figures and by making comparisons with the situation in the U.S. property market.
Here are a few key highlights from the conversation. Mr. Huang is quite thorough in his explanations making the interview a rather long read. Mr. Huang also throws out some bold numbers to be countered in a future post. I won’t comment on each point individually at this time but look for a thorough analysis towards the conclusion of the project.
WSJ: PLEASE EXPLAIN YOUR PHILOSOPHY IN TERMS OF GOVERNMENT REGULATION OF THE PROPERTY MARKET?
Mayor Huang: I think the pattern of property products should be based on two tracks, the first one is the commercial housing the second is public housing. No matter what measures and controls will be adopted in the commercial sector, six or seven years of family income will be enough to support a family to purchase a house.
(Even so) there are still a large number of low-income people who cannot afford housing. So I think it comes to the government to show its responsibility to provide them this housing. In any city or nation, I think the dual track system is very important: 60-70% commercial housing and 30-40% public housing.
So this is our philosophy to provide housing to the general public through these two tracks.
For a reasonable pricing regime, it should take a family six or seven years of annual income to buy outright commercial housing. This is a directional pattern. Of course, there are some high income people who can afford to buy a villa. In general, I think it is rational and reasonable for a family to spend six or seven years of annual income to buy a house. This is also a target of the government adjustment and control measures in the commercial housing sector.
Property products also belong to the category of consumer goods. So it comes to a supply and demand driven relationship. If there is an oversupply I think the price will be dragged down, and vice versa. The government should shoulder its due responsibility strike a balance in this relationship between supply and demand.
The other nature of property products is that they are also capital goods, since the family would usually like to hold this asset for a very long term. It is a very important issue for us to consider whether to collect tax by treating the property as consumer goods or as family assets.
It is different from, for example, cosmetic products which are purely consumer goods and the tax should naturally be collected during the process of production and transaction. But when you collect tax from the transaction process this process will push up higher the price of the products.
We should have a clear view of the nature of the property products as a capital good. By collecting property tax, I think we will be able to dampen the speculation in the market. Today in China, the tax is only collected in the transaction. When it comes to the property market, this is something different from the United States. We know in the U.S., you have the property tax and for that reason we should really learn the experience from the United States.
Property products are also financial goods. Bank loans are heavily involved during the whole process starting with construction to purchasing. The market is very much affected by monetary policy. So I think in carrying out government macro control and adjustment we should rely on financial tools.
We have already adopted four specific measures to regulate and address the property market in Chongqing. First of all we look at property as consumer goods, so we struck a balance between the supply and demand. Each year the government investment in the property market will be no larger than 20% of government investment in fixed assets. Thirdly, we have already initiated some pilot projects here in Chongqing in collecting property tax. Fourthly, we also came up with a rational leverage ratio in terms of mortgage loans. The first time buyers have to pay 30% down payment, the second home needs you to pay 60% down payment and purchasing the third home you have to pay fully.
I think my model here covering these four aspects is really working very well here in Chongqing and I think it will also work very well in China at large, and even I think we can provide this model to the United States for its reference.
The interview can be viewed in its entirety at http://blogs.wsj.com/chinarealtime/2011/12/31/chongqing-mayor-on-property-market-goals/
The link below is another WSJ piece on the rise of low-income housing in Chongqing.
China’s Low-Cost Housing Boom
“Building low-cost housing projects is part of the Chinese government’s plan to restructure its housing sector. But some say it’s a risky strategy for the already shaky real estate industry.”