Chinese property market needs long-term mechanism

With stricter home purchase quota policies, investment demand has receded dramatically, and first-home purchasers are a major force in the marketplace.

"A great many first-home purchasers are young people who have just married and started their career. Their income is too high to enjoy low cost housing and too low to afford an apartment in commercial residential buildings," said Zhu Zhongyi, deputy head of the China real estate industry association.

They will become pillars of society and tend to complain about high prices. The government should address their problems by all possible means, said Zhu.

In October, Beijing announced that it will encourage commercial residential building projects with apartments under 90 square meters at 70 percent of the market price. The apartments will be sold to those who intend to own and live in them rather than investors.

"We think too little of the supply side. We should have taken into account the needs of people of different income levels," said Wang Rongwu, deputy head of Beijing municipal commission of housing and urban-rural development.

He added that not enough housing was offered to purchasers with specific requirements in the past.

"If their housing problem is properly addressed, the prices of high-quality commercial housing will be decided by the market in the future," said Wang.

The policy was carried out in accordance with government's overall guideline for solving the problem - low income parties are guaranteed places to live, the middle classes can afford to buy apartments with favorable policies, and the rich are limited in what they can buy.

According to Zhang Wei, deputy head of Beijing municipal bureau of land resources, 50,000 apartments will be offered to first home purchasers at low prices.

This will greatly change the supply-demand structure because approximately 80,000 new commercial residential apartments are offered each year in Beijing, said Zhang Dawei.

Chen Zhi, deputy head of Beijing real estate industry association, said the policy is significant in stabilizing the market because people can have a clear expectations of house prices in the near future.

Chen said most first home buyers purchased houses "irrationally" because they are afraid that their income will never keep pace that of house prices. "They now have fewer such worries," he said.

So far no other cities have similar polices and industry insiders would like to see the policy popularized in first-tier cities.

It is the fastest way to stabilize housing price without hurting local government land revenue, according to Ren Xingzhou, director of the market economy research institute of the Development Research Center of the State Council.