Home » Opinion » Chinese Views
Lower housing prices hold little appeal
Source: Xinhua |
April 11, 2011, Monday
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Print Edition
Print Edition
POLICY makers are racking their brains to rein in skyrocketing home prices, while property firms hesitate to lower their prices.
The government vowed in March to accelerate the creation of a new housing supply mechanism over the next five years. The new system is aimed at putting low-income housing in the government's hands, and leaving commercial housing to the whims of the market.
China's low-income housing system is comprised of a variety of housing solutions, including low-cost rental housing, public rental housing and price-limited housing. Each of these solutions is aimed at a different low-income group. This system is considered particularly suitable for China, in light of the country's rapid urbanization.
China's housing troubles can be traced back to 1998, when the government ended a decades-long welfare housing system and encouraged people to buy their own homes to boost domestic demand. China's banks started providing mortgage loans to home buyers shortly thereafter.
The move unleashed huge demand for homes among Chinese, as rising incomes and increasing rates of urbanization were changing the way people looked at home ownership. The real estate market took off, with property developers experiencing a decade-long business boom.
However, the change also led to a continuous spike in housing prices. Local governments preferred to sell property to developers to boost fiscal revenues and local GDPs. They largely ignored the idea of building more low-income housing for those who were left out of the housing boom.
Fears of bubble
Over a decade later, a rising shortage of low-income housing and soaring property prices have ignited fierce debates and fueled fears of a real estate bubble that could eventually burst, posing a great threat to China's economy. In light of this risk, the central government has vowed to revive low-income housing, with its ambitious plan to build 36 million low-income homes by 2015. This plan will raise the proportion of affordable housing in China to 20 percent. The proportion stood at 8 percent at the end of 2010.
Increasing the availability of low-income housing has been cited by many government officials and economists as the best remedy for the skyrocketing housing market.
"It is the only and best way out now," said Zhang Hanya, director of the Investment Association of China. "The development of the real estate market should run on two legs," he said, noting that it is necessary for the government to reassume this previously overlooked responsibility.
Doubts
Yin Zhongli, a real estate and finance expert at the Chinese Academy of Social Sciences, supports the campaign, but doubts its feasibility. As long as local governments implement the central government's new measures, price gains can be contained, said Yin.
Local governments appear to be reluctant to lower property prices, Zhang said.
Among first-tier cities, where prices have risen the fastest, Beijing is the only city to aim for a moderate decrease in the prices of new homes in 2011. Other cities, such as Shanghai and Shenzhen, plan for an 8 to 15 percent gain in real estate prices from last year. "They don't want home prices to decline and apparently they are not confident in curbing prices either," Zhang said.
In China, most of the taxes collected by local governments go to the central government. This tax revenue eventually trickles back down to lower levels of government, which are responsible for basic services such as education, medical care and social security. Therefore, many Chinese cities have to make ends meet by selling property.
Government data shows that income from property sales accounted for 46 percent of all local government revenues in 2009. "Price declines will dent property developers' drive to acquire land and build homes, and in turn reduce the revenues of local governments," Zhang said.
Yin said that it is not reasonable to blame local governments only for the surging housing prices.
China's broad money supply (M2) increased by 22 trillion yuan in 2009 and 2010, he said, adding "inflation is always a monetary phenomenon."
Yin said that the central bank should make the stabilization of both consumer product and housing prices its main goal, in addition to stabilizing employment rates and general economic growth.
The government vowed in March to accelerate the creation of a new housing supply mechanism over the next five years. The new system is aimed at putting low-income housing in the government's hands, and leaving commercial housing to the whims of the market.
China's low-income housing system is comprised of a variety of housing solutions, including low-cost rental housing, public rental housing and price-limited housing. Each of these solutions is aimed at a different low-income group. This system is considered particularly suitable for China, in light of the country's rapid urbanization.
China's housing troubles can be traced back to 1998, when the government ended a decades-long welfare housing system and encouraged people to buy their own homes to boost domestic demand. China's banks started providing mortgage loans to home buyers shortly thereafter.
The move unleashed huge demand for homes among Chinese, as rising incomes and increasing rates of urbanization were changing the way people looked at home ownership. The real estate market took off, with property developers experiencing a decade-long business boom.
However, the change also led to a continuous spike in housing prices. Local governments preferred to sell property to developers to boost fiscal revenues and local GDPs. They largely ignored the idea of building more low-income housing for those who were left out of the housing boom.
Fears of bubble
Over a decade later, a rising shortage of low-income housing and soaring property prices have ignited fierce debates and fueled fears of a real estate bubble that could eventually burst, posing a great threat to China's economy. In light of this risk, the central government has vowed to revive low-income housing, with its ambitious plan to build 36 million low-income homes by 2015. This plan will raise the proportion of affordable housing in China to 20 percent. The proportion stood at 8 percent at the end of 2010.
Increasing the availability of low-income housing has been cited by many government officials and economists as the best remedy for the skyrocketing housing market.
"It is the only and best way out now," said Zhang Hanya, director of the Investment Association of China. "The development of the real estate market should run on two legs," he said, noting that it is necessary for the government to reassume this previously overlooked responsibility.
Doubts
Yin Zhongli, a real estate and finance expert at the Chinese Academy of Social Sciences, supports the campaign, but doubts its feasibility. As long as local governments implement the central government's new measures, price gains can be contained, said Yin.
Local governments appear to be reluctant to lower property prices, Zhang said.
Among first-tier cities, where prices have risen the fastest, Beijing is the only city to aim for a moderate decrease in the prices of new homes in 2011. Other cities, such as Shanghai and Shenzhen, plan for an 8 to 15 percent gain in real estate prices from last year. "They don't want home prices to decline and apparently they are not confident in curbing prices either," Zhang said.
In China, most of the taxes collected by local governments go to the central government. This tax revenue eventually trickles back down to lower levels of government, which are responsible for basic services such as education, medical care and social security. Therefore, many Chinese cities have to make ends meet by selling property.
Government data shows that income from property sales accounted for 46 percent of all local government revenues in 2009. "Price declines will dent property developers' drive to acquire land and build homes, and in turn reduce the revenues of local governments," Zhang said.
Yin said that it is not reasonable to blame local governments only for the surging housing prices.
China's broad money supply (M2) increased by 22 trillion yuan in 2009 and 2010, he said, adding "inflation is always a monetary phenomenon."
Yin said that the central bank should make the stabilization of both consumer product and housing prices its main goal, in addition to stabilizing employment rates and general economic growth.
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