Housing Market Challenges

According to figures from the National Bureau of Statistics （NBS）， the number of unsold homes in China has kept growing since 2011， with the total area of unsold homes rising from 272 million square meters at the end of 2011 to 686 million square meters by October 2015.

These NBS figures are particularly striking considering that they only take into account unsold homes that have sales permits. Meanwhile， the number of unsold homes without the permits is much larger.

Home sales have recovered this year—from January to October， the area of homes that had been sold rose by 7.2 percent year-onyear while the sales value had increased by 14.9 percent. However， unsold home figures are still growing across the country， excluding first-tier cities. With real estate investment surpassing sales volumes， the real estate market is still experiencing excessive supply.

The main focus of the real estate industry has been transferred from addressing price bubbles to curbing supply bubbles， because they might affect the sound development of the industry and even endanger the countrys economic security and social stability.

Reducing the number of unsold residential areas has now become an important task for the real estate industry and even the national economy.

To combat this problem， the government needs to make changes on both the demand front and the supply front—stimulating more demand and curbing supply.

Financial， taxation and administrative policies should be used to stimulate demand. Currently the monetary policy is relatively relaxed. The interest rate and required down payments for homes have been lowered， and are likely to be cut even further in the future.

As for taxation and fiscal policies， the government could postpone the collection of real estate taxes and reduce deed taxes. The government may also purchase some commercial residential buildings and sell them to lowincome groups as “affordable housing.” When renovating shanty towns， the government should increase compensation proportions to households marked for relocation， in order to encourage them to buy new homes with the money.

As for administrative policies， the government must further relax its control of household registration and its limits on home purchases. By the end of 2014， the urbanization rate in China had reached 54.77 percent， but only 35.9 percent of the total population was registered as urban residents. That means about 200 million people now work and live in cities but are still registered as rural residents. Except in firsttier cities， household registration policies must be relaxed further.

The government used to have many worries when stimulating housing demand because it could cause a rapid rise in housing prices. But now， stimulating demand appropriately will be less likely to push up housing prices when home supply exceeds demand.

The government must make efforts from both the demand front and the supply front to reduce unsold homes. However， the focus and difficulty of reducing unsold homes lie in the supply side.

What the government should not do is to try reducing the number of unsold houses while transferring more land use rights to real estate developers. As the only supplier of land， local governments can greatly influence the real estate industry. In order to increase the amount of homes being sold， local governments must strictly control the transfer and use of land use rights. Otherwise China cannot meet their housing goals. However， reducing the transfer of land use rights will also reduce the fiscal revenue of local governments， which will intensify their financial pressures. It is therefore difficult to reduce unsold homes through this method.

Then， what should the government do to improve the supply side？ In my opinion， it should pay more attention to the allocation of public resources for urban areas. This used to be overlooked， but it is very important for the reduction of unsold homes. As land becomes scarcer in city centers， the supply of new land comes from new districts， city outskirts or satellite towns， where public facilities such as schools， hospitals， business outlets and transportation are currently inadequate. This factor increases the concern of potential home buyers and therefore influences purchases.

Real estate developers must also improve themselves. When the market was prosperous， any building， regardless quality and location， would be sold out. In that sense， developers were not accustomed to setting up a market and customer-oriented business concept. Moreover， many developers are now heavily debt-ridden， and some of them have very tight cash flows.

In short， the government needs to not only encourage demand， but also strengthen its efforts on the supply front. Only by doing this can the real estate industry contribute more toward the economic growth and improvement of the peoples wellbeing.