House prices ring the alarm

China's house prices have continued to rise, despite the government's control measures, and the historical experiences of other countries show that policymakers should act promptly to prevent the bubble bursting.

The cost of a new home in 100 major Chinese cities rose 5.3 percent year-on-year to reach an average of 10,098 yuan ($1,610) per square meter, according to the China Index Academy, a major private research institution. The rise follows a strong price surge in March, when house prices rose in 68 out of 70 major cities where property prices are tracked.

Economists who have been sounding the alarm for a number of years about the risks of the housing bubble bursting have been accused of crying wolf, because real estate prices keep on rising. But this time their warning should be heeded.

After 10 years of seemingly unstoppable rises, China's house prices are not only difficult for ordinary people to afford, worse there is now a widespread, but false, impression among potential buyers that prices will continue to rise forever.

The authorities are obviously aware of the potential dangers of a bubble and have introduced various measures, such as a capital gains tax of 20 percent on sales of residential properties, to try and tame it. But the rising trend shows that the policies are yet to have the desired effect.

Researchers, including some from main government think tanks, have warned that the situation could get out of control if the authorities fail to take prompt and effective action.

However, it will take courage for policymakers to introduce further restrictions, given the national economy's uncertain growth prospects. Major international organizations and research bodies have cut their forecasts for China's GDP growth this year due to the weak data in the first quarter. Dampening the property market will be a further drag on growth. But continued property price rises could lead to an even more worrying scenario, as apart from the growing complaints from the public that houses are unaffordable, the political and economic costs of the property bubble bursting will be high.

It is understandable that the authorities fear a heavy blow to the market will have an unwelcome effect on the national economy, but it is time they moved further to tackle the rising trend before it gets out of hand.

(China Daily 05/06/2013 page8)