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Is inflation expectation pushing housing prices up?
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16:40, July 14, 2009

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Since March 2009, China's housing prices have continued to increase month-on-month. Inflation expectation and favorable housing policies have both contributed to this rise.

A substantial increase in fluidity will lead to soaring stock and housing prices. Although there is no inflation at present, this will not rule out future inflation, and thus lead investors to buy real estate properties in order to cope with expected inflation, according to Nie Meisheng, president of China Real Estate Chamber of Commerce.

The soaring housing prices are related to China's credit policies. The current growing demand in the housing market is due to certain companies and investors' fear of inflation, said Cao Jianhai, chief of Investment and Market Research Office at the Institute of Industrial Economics under the Chinese Academy of Social Sciences.

China's macro-control policies and local governments' bailout actions have also played a role. To cope with the impact of the financial crisis, local governments have put forward a series of positive policies including tax cuts, monetary subsidies and lowering the threshold for market access among others. This has not only reduced the cost of purchasing a house, but also alleviated capital pressure for developers.

The price reduction measure put forward by some property developers has also contributed to the recovery of the real estate market. The prices for houses put on market previously were substantially reduced for sales promotion, and the prices for new houses generally dropped by 10 to 20 percent.

Stimulated by developers' price cuts and favorable housing policies, rigid housing demand accumulated during 2008 has been released and led to this round of recovery. However, once demand weakens, the housing market will still face the huge pressure of excessive inventory.

Experts believe that in the long run, the real recovery of the real estate market rests upon two fundamental factors: the overall recovery of China’s real economy and the restoration of reasonable housing prices.

By People's Daily Online

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