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Housing and administrative power

Property prices and speculative buying have surged in Baoding, a city in Hebei province, since the announcement last week that the city might take over some of Beijing's administrative responsibilities in the future. The rise in house prices shows how China's real estate market is heavily influenced by government plans, says an article in gmw.cn. Excerpts:

Housing prices rose about 10 percent last week in Baoding. The rise in demand is obviously good news for the local developers in Baoding. It is reported that 14 extra buses were needed at the weekend to pick up potential buyers from Beijing at Baoding Railway Station.

This is in stark contrast to the shrinking demand in most cities nowadays. Even in Beijing, the trading volume has fallen since the beginning of the year. It shows the close ties between government planning and the real estate market in China, which means the country's real estate market can be regarded as a policy market, as the intervention of administrative power can directly influence house prices and market performance.

To be more specific, for a real estate project in China, all of the land trading, commercial plans and public service support are all related to the power of the local authority.

Even if Baoding city takes over some of Beijing's administrative responsibilities in the future, the surge in demand may just be a bubble, as the plan is still a vague idea.

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