China’s property market is a major source of financial risk

BEIJING: China’s property market has become a major source of financial risk and Beijing cannot rely on adjustments to monetary policy alone to resolve the ‘serious’ problems caused by the sector, a central bank official wrote yesterday.

Xu Zhong, head of the People’s Bank of China’s research bureau, said in an article in a central bank publication that there should be a property tax on homeowners nationwide as a way to help control prices.

Chinese homeowners do not pay a recurring property tax on their homes, which they technically lease for up to 70 years, with the exception of a very small number in property tax trials in Shanghai and Chongqing.

Xu also said authorities should maintain strict controls over property markets in first and second-tier cities, where prices gains have been the strongest.

His suggestions focused on the need to develop a longterm mechanism that supports the healthy development of China’s property market, which has been subject to several cycles of overheating and tight regulatory clampdowns over the past decade.

New home prices in major cities rose 9.7 year-on-year in July, while investment growth eased to 4.8 per cent, the statistics bureau has said.

“Real estate has serious problems such as crowding out investment (from other areas), impeding the transformation and healthy development of the economy, and is also an important source of financial risks”, Xu wrote.

He blamed the property bubble on lax financial market oversight and local governments’ practice of pushing up prices in land auctions, which limits supply, and said the government should drop the practice of using property policies to influence broader economic development. — Reuters