WATERMELONS AND PEACHES TO SAVE SLUMPING REAL ESTATE OF CHINA

WATERMELONS AND PEACHES TO SAVE SLUMPING REAL ESTATE OF CHINA

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Writing provides me with great gratification. But writing backed with logistics and reasoning is my passion.

I strive to keep myself updated with all the happenings around world and articulate it to provide my readers with informative news.

Covid-19 virus continues to destroy all spectrums of the society. But in China, it seems to have given life to the dying culture of the centuries old barter system. The real estate developers there have resorted to taking garlics, watermelons, peaches, wheat and other agricultural produces in exchange of properties. This step might be the last straw to save the distressed developer’s situation in China.

But Covid-19 is not the only one to blame for this mortified situation. This crisis is continuing since 2021 and passing property tax reforms could have paved the way for better position.

But it didn’t get on the paper and was only in the talks. The congressmen argued that since many party members own more than one property, the tax will add an unnecessary burden and become a social stability issue. So, this shows the concern of the Chinese administration.

Another reason is the high prices of the properties. This sector of the real estate market supports nearly 25% of China’s GDP.

Since the housing market reform in the late 1990s. Chinese housing prices have grown so fast that a typical apartment in Beijing now costs 25 times the annual wage. Thus, high housing prices add a tremendous burden on Chinese people and suppress their consumption and innovation power.

Digging deep, one can understand that the root causes of China’s distorted real estate markets are twofold. From the supply side, the 1994 fiscal system reform shifted tax money to the central government without reducing the burden on local governments.

As a result, local Chinese governments cover over 80 percent of all government expenditures while only receiving half of the tax money. 

From the demand side, a financial repression policy that aims to benefit banks and state-owned enterprises deprives Chinese households of viable investment options.

Thus, the Chinese middle class views the ever-booming housing market as the most profitable place to put their money.

Data from the most recently published China Household Finance Survey, shows that 21% of homes – some 65 million – were vacant as of 2017, The Wall Street Journal reported. That many empty units could house the population of France. They’re not abandoned; they’re just unoccupied.

The first thing to understand is that they are not in states of disrepair. Instead, they are new builds that were bought as investments. They’re also a symptom of mismatched supply and demand.

The government gets big sales revenue from leasing out land to developers. This gives the government very strong incentive to encourage development instead of limiting it.

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Every year, China starts building 15 million new homes – five times as many as the US and Europe combined, The Economist reported in January, 2021.

So, now Covid-19, central government policies and an economic set-back has persuaded or rather coerced the desperate developers to accept agricultural products as down payments from farmers for homes.

There have been other efforts as well by the officials. Those include easing restrictions on 2nd home purchases. They also rolled out vouchers for future home buying for those agrees to demolish their properties. This was mainly targeting tier-3 and tier-2 cities.

Despite all these efforts, even wealthier population is not buzzing to invest in this sector, making the situation more grim.

Writing provides me with great gratification. But writing backed with logistics and reasoning is my passion.

I strive to keep myself updated with all the happenings around world and articulate it to provide my readers with informative news.