Note, the central government doesn't want high prices, but the Chinese government is not entirely monolithic. "Heaven is high, and the Emperor is far away", is a common Chinese saying - people bend the rules when they can get away with it.
But yes, local governments get a lot of their revenue from land scales. If they are anything like Western local governments, they also get most of their bribes from developments (there are opportunities for zoning bribes, development approval bribes, building inspection bribes, waste disposal bribes, infrastructure connection bribes, and so on, depending on how corrupt they are).
Do you think that is valid comparison? (NB In many ways I hope it isn't as a crash like Ireland's on the scale of China would presumably be disastrous).
You can also see that with their investments in Australian real estate (where I now live). A lot of the apartments now being built are investment properties for Chinese buyers. In a lot of cases, the building is nearly sold out even before construction begins!
An oddly familiar pattern, and one that should give us pause.
Sydney in particular has a very tight housing market due to lots of people moving in but not nearly enough apartments and houses being built. This has kept prices up, but there will have to be a drop at some point. The only question is when, not if, and how much.
That sounds quite ominous - reminiscent of the property bubble here in the UK prior to 2008 (which was completely insane, but very tame compared to Ireland).
How is the rental market holding up there?
Luckily I don't work in the Sydney CBD, so my commute is pretty easy. :)
Basically, if you look at an asset breakdown of personal wealth, real estate will account for 65% of all investments in China, while in other countries like the US or in the EU, that number is close to 20% (source: World Bank & Citibank's Investment Research and Analysis). Other than that, because of a reform on the tax sharing mechanism (in 1994), local governments are highly dependent on the real estate market, as 40-55% of their direct income comes from land sales and property-related taxes. That gives the government a very high incentive to keep property prices up and the real estate market booming.
I can email the report to anyone interested in it (sorry, can't just upload to the public here, I worked at Citibank once, could get me into trouble), just send an email to me ([email protected]) and remember to put HN on the subject.