Xinhua News Agency, March 4th: what factors drive up housing prices? Xu Jiayin disclose cost composition, prompting contemplation of the chronic disease that’s been plaguing the real estate market. Journalists: Wang Yu, Luo Yufan, Lin Su.

“The continuous increase of land costs, taxes and charges, as well as profits, are at the root of the high housing price in recent years. ”Xu Jiayin, CPPCC member and Evergrande’s Board Chairman, disclosed housing cost composition during the group discussion at the 2nd session of the 11th Chinese People’s Political Consultative Conference on March 4th, arousing widespread attention from attendees and journalists.

How is the housing price driven up? How will the price change in the future? How should the real estate market develop in the future. These become the topic of heated discussion during the two meetings.

Xu Jiayin discloses cost composition

The composition of house costs has always been a sensitive topic avoided by real estate companies and governments, but this secret has now been disclosed by a CPPCC member who is also in the real estate industry.

“In China, housing price currently comprises of five types of costs, namely construction costs, enterprise management costs, land costs, taxes and charges, as well as profits. The fact that China’s housing prices are constantly on the increase is closely related to the continuous substantial increase of the last three costs. ” Xu Jiayin disclosed a shocking truth, “normally, there is no major fluctuation in the first two costs, the last three costs are the main variables that affect housing prices.” Moreover, some real estate companies pursue profits to an unreasonable extent. At present the last three costs account for over 80% of the house selling price, among which land cost accounts for 30% of the house selling price, taxes and charges account for 30%-40% of the house selling price, the ratio of profit to house selling price also far exceeds the world average figure of 5%. If these three costs continue to increase, there is no doubt that the housing price will increase again.”

It is reported that ever since China implemented the tax sharing system reform, local governments have been faced with insufficient tax revenues, therefore, land transfer income has become an important source of non-budget income for many local governments. Some local governments are keen on “land finance”, practically fuelling the rapid growth of land prices.

“Some real estate companies add such high cost to the housing price. So the constant increase of land costs in turn fuel the rapid increase of housing prices. ”Said Xu Jiayin, “as many as 100 items of taxes and charges are imposed during the real estate development link, the total of which accounts for over 1/3 of the housing price, which are eventually passed on to consumers.”

Xu Jiayin’s viewpoint is echoed by Mao Yunshi, CPPCC member and Professor of Sun Yat-Sen University. Mao Yunshi pointed out during the interview that in some places, a considerable portion of the fiscal income is supported by the real estate industry. Such a development mode has been fueling the rapid growth of real estate projects in recent years.

Unreasonable housing prices threaten national welfare and people’s livelihood

Through nearly a decade’s rapid development of the domestic real estate market, the living environment of many house-buyers has been improved. But meanwhile the high housing price also poses a heavy burden for house-buyers, the real estate market has also encountered its bottleneck in development.

“At present, the internationally acknowledged reasonable ratio of income to housing price is between 4 and 6, but in China, this ratio stands at 15, in a few big cities, it is even higher. ”says Xu Jiayin.

The unreasonable housing price has brought the domestic real estate market into an overall sluggish state. A nationwide survey conducted by the People’s Bank of China that targets depositors in cities and towns shows that now resident’s buying will is down to the lowest point in 10 years. In terms of market activity, it now resembles what it looked like in 1998 when real estate reform first started. Housing vacancy rate, a reflection of the market activity, still remains at a high level. Data released by the National Development and Reform Commission show that as of the end of last year, the nationwide vacant area of commercial houses registered a year-on-year increase of 21.8%, while the number of vacant commercial houses had a year-on-year increase of 32.3%. According to the forecast made by Yiju Real Estate Research Institute, it will take the domestic housing market over 33 months to consume the current supply.

Housing price should be maintained at a reasonable level

Unreasonable housing price has become the biggest obstacle to the healthy development of the real estate market. Gu Shengzu, Representative of the National People’s Congress and renowned economist says real estate companies should adapt to the changing needs of the market and actively take measures to promote selling with reasonable prices.

“First of all, real estate companies should maintain profits within a reasonable range, take Evergrande for example, it has always been adhering to the “meager profit” policy which is welcomed by consumers and helps it achieve stable development.

Second of all, local governments should adopt a long-term perspective, let the general public share the short-term and partial profits from land transfer, and control excessive growth of land price. In addition, the State Government should improve the real estate taxation system, abolish most unreasonable taxes and charges, and bring housing price to a reasonable and stable level through “three control measures”. suggested Xu Jiayin.