Op-Ed Contributors

Policy reform for realty sector

By Shi Jianxun (China Daily)
Updated: 2010-05-20 07:45

The government must take measures to overhaul the industry and fulfill its commitment to affordable housing for all

The intensive policy measures recently undertaken by the central and local governments to curb soaring home prices and crack down on speculative purchases are expected to help contain property prices from spiraling, but thorough reform is needed to root out the problem.

China's housing prices have risen steadily over the past decade, but the drastic hike seen since the latter half of 2009 has caused widespread concern regarding a real estate bubble.

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Besides their relevance to supply-demand imbalances, high housing prices are also closely related to the fact that the country's land, industrial, fiscal and financial policies have long run counter to public policies that improve people's livelihood.

Defects in the country's existing property development model and its management have also contributed to rising property prices.

In order to honor its commitment to provide at least one dwelling unit for each of its citizens, the government should have increased the pace of constructing lower-priced homes and taken more measures to keep home prices under levels acceptable to the majority of ordinary citizens, rather than choosing to inflate its coffers through taxation and land sales at high prices.

However, the real estate sector has for long been seen as a pillar of the national economy and an area to tap consumption.

Such a policy orientation has made the sector grow by leaps and bounds in recent years, which in turn has contributed much to the rising gross domestic product and swelling revenue from land sales of some local governments.

Land monopolies mean the country's real estate industry should not be taken as a full market player and that houses are by no means common property.

As a sector that is partly entrusted with guaranteeing and improving people's livelihood, the real estate sector should not be completely subject to market regulation.

However, China's property development has been completely run under market principles, and developers have used all means available to push home prices up in a bid to gain maximum profit.

Although ordinary citizens hope home prices will drop to a level that they can afford, any drastic decline will squeeze developers' profit margins, discouraging them from investing more in the sector.

Slowing rate of home construction will also reduce local government revenues and thus stall the rate of GDP growth.

If some real estate enterprises go bankrupt as a result of the slump in the industry, it will also compromise banks and other related sectors.

Due to such a complicated and intertwined relationship, it is natural for local governments, real estate enterprises and financial agencies, all of whom have a dominant say in the real estate market, to hold a passive attitude toward any measures that will potentially make home prices tumble.