Mar­ket needs grad­ual drop in realty prices

China Daily (Hong Kong) - - VIEWS -

There is no need to cite sta­tis­tics to show hous­ing prices in China’s big ci­ties have been too high for or­di­nary peo­ple to af­ford. Just ask peo­ple around you if they are fi­nan­cially strong enough to pur­chase a new apart­ment in Bei­jing or Shen­zhen, and most of them will shake their heads sug­gest­ing “no” and might even stare at you as if to ask in re­sponse, “why do you ask such odd ques­tions?”

The coun­try’s top lead­ers are aware of this re­al­ity. And that’s why dur­ing the re­cently con­cluded Cen­tral Eco­nomic Work Con­fer­ence they is­sued a warning, “homes are for res­i­den­tial use, not spec­u­la­tion”.

Ac­cord­ing to a state­ment re­leased af­ter the con­fer­ence, China will take highly tar­geted mea­sures to achieve the goal of “sta­ble and healthy de­vel­op­ment of the real es­tate mar­ket”. For ex­am­ple, mone­tary pol­icy will be prop­erly man­aged, mone­tary flows into spec­u­la­tive hous­ing pur­chases re­stricted, land for con­struc­tion in ci­ties with very high hous­ing prices in­creased, and the ren­tal mar­ket en­cour­aged to ex­pand to meet the hous­ing de­mand of peo­ple who don’t own an apart­ment.

If these poli­cies are se­ri­ously im­ple­mented, pol­i­cy­mak­ers may be able to achieve their pro­fessed goal of “putting real es­tate bub- bles un­der con­trol and pre­vent­ing dras­tic fluc­tu­a­tions of home prices”.

The public, how­ever, might not be fully con­vinced about the ef­fec­tive­ness of these poli­cies, be­cause many peo­ple have got dis­il­lu­sioned over the past decade by the con­tin­ued rise in hous­ing prices de­spite pol­i­cy­mak­ers’ re­peated pledge that it would be stopped. And if af­ter sev­eral months of lull, hous­ing prices in big ci­ties start ris­ing sharply again some­time next year, public griev­ance would grow and few would con­tinue to be­lieve in the prom­ises of the govern­ment.

There­fore, the real es­tate reg­u­la­tion this time is not just a mere eco­nomic task, but a mustdo po­lit­i­cal ex­er­cise that has much bear­ing on public con­fi­dence in fu­ture pol­i­cy­mak­ing of the govern­ment.

In the eyes of pol­i­cy­mak­ers, the bat­tle to con­trol hous­ing prices is one that can­not be lost. The hous­ing fever has caused se­ri­ous prob­lems that could trig­ger a snow­balling ef­fect. Hous­ing prices in tier-1 ci­ties, such as Bei­jing, Shang­hai and Shen­zhen, have be­come un­af­ford­able as the ra­tio of hous­ing prices to house­hold dis­pos­able in­come has in­creased from about 15 times last year to 18 to 20 times, Yi­fan Hu and Thomas Deng, chief in­vest­ment of­fi­cers for China at UBS Wealth Man­age­ment, wrote in an ar­ti­cle pub­lished in Bar­ron’s mag­a­zine in Oc­to­ber. As a re­sult, China’s tier-1 ci­ties’ af­ford­abil­ity is close to Hong Kong and more ex­pen­sive than Lon­don (15 times), which is the high­est among ma­jor global ci­ties.

If hous­ing prices con­tinue to rise at a fast pace, then the bubble in the prop­erty mar­ket may burst, and China will have to tackle not only a real es­tate im­plo­sion, but also the erup­tion of a wider fi­nan­cial cri­sis. As top Chi­nese lead­ers par­tic­i­pat­ing in the Cen­tral Eco­nomic Work Con­fer­ence said, the coun­try must “put more pri­or­ity on preven­tion of fi­nan­cial risks” and “make ef­forts to pre­vent and con­trol as­set bub­bles” to en­sure no sys­tem­atic fi­nan­cial risks oc­cur.

Pol­i­cy­mak­ers, how­ever, are in a dilemma, be­cause if hous­ing prices drop sharply as a re­sult of reg­u­la­tory mea­sures, they could trig­ger ma­jor fi­nan­cial prob­lems, as they would se­ri­ously af­fect the bal­ance sheets of Chi­nese banks and threaten fi­nan­cial sta­bil­ity, which will ham­per pol­i­cy­mak­ers’ ef­forts to main­tain eco­nomic sta­bil­ity.

The most de­sir­able sce­nario would be real es­tate prices fluc­tu­at­ing within a cer­tain range so that pol­i­cy­mak­ers get enough time to grad­u­ally plug the loop­holes in the fi­nan­cial sys­tem to make the coun­try more adapt­able to eco­nomic slow­down and fi­nan­cial tur­moil caused by prob­lems such as the lo­cal govern­ment debt.

The au­thor is a se­nior writer with China Daily. xinzhim­ing@chi­


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