By Ma Hongman (China Daily)
Updated: 2007-09-10 10:23

Market economy was first introduced to the Chinese property market in a national conference held in June 1998. However, in the intervening years, it was decided the market would no longer be the sole power in allocating estates to different social groups.

In a working conference on housing held on August 24 and 25, the government stressed its responsibility for providing people with proper housing.

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The government plans to establish a system covering most of the urban population. Families with the lowest income will be offered low-rent houses, those better off financially will be allowed to purchase low-priced houses and the middle-income will be allowed to buy homes in common estates.

The low-rent and low-priced houses will be subsidized by the government. The conference required all local governments to ensure that low-rent, low-priced houses make up at least 70 percent of new estate projects.

This specific requirement will definitely boost public welfare by guaranteeing proper shelter for people of relatively low income. It also indicates a major change in the government's strategy of regulating the property market.

The State has tried to cool the heated market in recent years. The major moves it took range from imposing specific limits to the size of flats, to controlling the financing sources of estate developers. But none of these seemingly forceful policies has worked effectively, and property prices have kept increasing in almost all cities of the country.

The failure of these measures lies in one simple fact: they did not directly change the balance of supply and demand. As long as demand is greater than supply, property prices will keep increasing.

When the State-sponsored estates, the low-rent, low-priced houses, come on the market, they will change the demand/supply ratio. The government will be able this time to achieve its policy goal directly with the use of public funds. This could mean a sweeping change to the real estate market.

Of course, this change will only come about with the full application of the policy. The key element is money.

According to the central government's plan, the fund for building low-rent, low-priced housing will be drawn from the land transference income of local governments - 10 percent annually.

Hou Ximin, an official with the Ministry of Construction, estimated the money would be more than 25 billion yuan ($2.9 billion) each year. He believed this would be adequate for building homes for the low-income groups.

So the issue boils down to one question: Will local governments offer 10 percent of their land transference income on time to build these houses? Many are reluctant to give a definite answer.

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