China’s new housing policy risks unintended consequences – Mark A. DeWeaver

On May 17, Chinese Premier Wen Jiabao announced a six point plan intended to make it easier for the average urban family to find housing. It called for: (1) more maller-sized units, (2) macro-control using tax, credit, and land policies, (3) fewer forced relocations, (4) a more orderly market, (5) more rental and low-income housing, and (6) better information is closure.

At the time, this initiative seemed unlikely to amount to much, particularly as there had been relatively little follow-through after a similar State Council announcement last year. But over the summer, as detailed policies began to emerge from a variety of central government ministries and commissions, it became clear that the real-estate industry was now facing a major change in its regulatory environment.

So far five measures have had the biggest impact. Two tax policies have been changed to
punish speculators while housing starts have been disrupted by a requirement that seventy
percent of all new units have a floor area of ninety square meters or less. State-owned land auction methods are being modified to encourage developers to build more affordable housing. And foreign investors are now facing rules requiring them to form Chinese-registered entities with high minimum capital requirements.

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