Tight lid on property prices

Easing the housing bubble will benefit economy and millions of ordinary people across the country rather than speculators

The recent reiteration by the top authorities that they will press ahead with the tightened real estate regulatory policies has disheartened developers who wanted the tight lid on the domestic housing market to be lifted amid signs of an economic slowdown.

At a press conference after the closing of the annual session of the National People's Congress on March 14, Premier Wen Jiabao told Chinese and foreign reporters in a straightforward manner that China's current house prices are still far from returning to a reasonable level and the country will not slacken efforts to regulate the sector.

"Reasonable home prices should match residents' incomes and should be proportional to their investment and profits," he said.

The experience of many developed countries indicates that reasonable home prices are usually three to six times a yearly household income. The ratio in some of China's first-tier cities, such as Beijing, Shanghai and Shenzhen, however, has reached more than 15 and even 20 times yearly incomes. That means the current home prices in the three Chinese cities need to decline by at least 50-60 percent before they return to a reasonable level.

But considering China's distinctive national conditions, such as its expanded demand for housing brought about by its accelerating urbanization, the widely applied international measurement is not always applicable to China. However, its mentioning by Premier Wen is still an unequivocal reflection of the Chinese authorities' dissatisfaction with the current high house prices and its unwavering determination to return them to a comparatively reasonable level.

The home prices to income ratio is seldom mentioned by China's top leaders on public occasions and thus its mentioning by Wen had huge repercussions. Following his remarks, prices of property stocks on the Shanghai Stock Exchange plummeted amid concerns over the approach of a cold winter for the housing sector in the months or years ahead.

In a move to further reinforce his "harsher-than-ever" attitude, at a State Council conference two days later, Wen again emphasized that the government will unswervingly carry out real estate regulations as one of this year's top priorities. These, along with a recent statement issued by the Ministry of Housing and Urban-Rural Development that the country will by no means relax a year-long ban on home buying by targeted people, have consolidated a firm-handed regulatory network on the country's speculation-prone housing market.

In fact, the adoption of a series of tightened housing policies and measures last year has helped China contain the unbridled momentum of the rise in housing prices. According to the latest statistics released by the National Bureau of Statistics, the prices of newly built homes in 45 of China's 70 major large and medium-sized cities, including Beijing, Shanghai and Shenzhen, declined in February from January and only four cities witnessed a less than 0.1 percent price rise. The cities that witnessed a prices decline in February from a year earlier also increased to 27.

Concurrent with the price decline is a lingering reluctance among consumers to buy. According to a survey published by China's central bank on Tuesday, residents with an intent to buy homes in the first quarter decreased to 14.1 percent, the lowest since 1999 over the same period. It also indicates 66.7 percent still believe housing prices are unacceptably high despite the moderate decline in prices over recent months as the result of the government's tightening measures.

The sluggish demand among would-be buyers, together with the country's repeated re-affirmations of unrelenting efforts to maintain regulatory policies, is expected to bring its intractable home prices onto a declining trajectory. A deeper and broader adjustment of housing prices is on the way if the regulatory measures are not weakened.

However, the fact that domestic property prices soared even higher after previous government regulatory campaigns testifies to the fact that fighting high home prices is a hard nut to crack. Premier Wen admitted as much during his March 14 news conference and said he felt saddened to hear the rumor that "central government policies do not get out of Zhongnanhai (the central headquarters for the Communist Party of China)".

Curbing home prices in China has proven to be an arduous task. In a country where the GDP-dominated economic growth model has not been completely discarded and land-sale revenues are a large contributor to local fiscal coffers, to lower housing prices is inevitably an uphill task and one certain to encounter obstructions. With the rise of property prices over the past decade, the proportion of land sales income to local fiscal revenues has increased from 16.6 percent in 2001 to 48.9 percent in 2009.

The fiscal crunch facing many local governments as the result of the housing regulations is prompting many of them to try and weaken the effectiveness of the tightening measures, as indicated by the failed attempt by the local governments in Foshan, Guangdong province, and Wuhu, Anhui province, to suspend a home-buying ban on targeted groups late last year. Also, it is possible that any monetary easing amid the country's economic slowdown will cause liquidity to again swarm into the housing market, negating the effects of the government's housing regulations and fueling a fresh rise in housing prices.

The central government should remain constantly on the alert.

The author is a writer with China Daily. E-mail: wuyixue@chinadaily.com.cn