China vows to curb property bubble

08:28, April 20, 2010      

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As the United States government has taken issue with Goldman Sachs and its like for profiteering on a souring home mortgage market, which later triggered the US financial system meltdown and the Great Recession, China is learning the lesson. The day after Beijing made itself sure that a solid economic recovery is set up on "numerical" rock, it lifted the hammer on bubbling housing prices.

On April 15, the National Bureau of Statistics announced that China's GDP growth for the first three months reached a sizzling 11.9 percent, powered by strong domestic consumption, sizable home investment and expansionist exports. The next day, the Central Government decided to increase the required down payment for a second housing mortgage from 30-40 percent, different by the lenders, to legally-binding 50 percent.

In addition, the borrowing rate on the second mortgage is hiked to 1.1 times of the usual rate. And, two days later, Beijing hardened its policy by encouraging banks to deny lending to investors who aspire to buy a third house in the big cities where prices have skyrocketed the most.

The frisk retail sales from January to March, growing 17.8 percent year-on-year, and momentous expansion in manufacturing, public and private investments and imports, have emboldened the government to finally take the action. Housing price rises by more than 10 percent for two consecutive months in February and March, widely considered "abnormal" and running against marketplace rule, had bluntly tested the nerve of Beijing.

It was not just ordinary home aspirants who were infuriated by, the vast public were also angered by the startling price rise. Some have slung mud at the decision-makers for "indifference and ineptitude". Other analysts claim prices are being propped up by property speculators who buy legions after legions of apartments with cash or bank loans, and jerk up home selling prices. The greedy developers and local governments may have also fermented the market frenzy by bidding up urban land auctioning prices, making housing increasing unaffordable for the common bread-earners.

But, most observers say, it is not the Central Government hadn't seen the bubbles perilously building up, it has waited for the "right time" to grease it. Beijing had feared that a throttled asset market – prematurely-- might woo an uncertain and nascent recovery, which it has carefully nourished since early 2009.

China's Premier Wen Jiabao has thrown himself personally into the cause. In an online chat with Chinese Web readers in early March, the scholarly Wen said that he loathed high-flying housing prices as he recalled old days of his whole family of five once living in less than 10 square meters in Tianjin, north China. He vowed to bring down the prices then. Wen was reportedly "flaming" on March 16, one day after he promised measures to curb asset bubbles at a press conference held at the Great Hall of the People after the closing of the annual NPC or parliamentary session, and the day when Beijing's three plots of land for development were auctioned at record highs, attracting torrents of criticism and cynicism.

As Prime Minister, Wen knows perfectly the catastrophic aftermath a bursting asset bubble had brought to Japan in the early 1990s, and then to the United States in 2008. A scarlet before his government is to prevent it from happening and wrecking havoc in China. For several months, the domestic and overseas media have bridled that this country is in the midst of a rapidly growing real estate bubble. It is by no means that the Central Government hasn't even heeded the danger.

China is indeed undergoing a process of a huge urbanization push which is to ratchet up demands for apartments and houses in all-tiers of cities. Last year, a record 3.8 trillion yuan (US$550 billion) of residential property was sold, an increase of roughly 80 percent from 2008, official statistics say. And, just because of the voracious demand, the market is easy to fall as prey to the speculators, who snap up properties on the expectation that would-be buyers are always there and prices will continue to rise, as it was the pattern for more than a decade. The result of housing manipulation – prices in cities like Shanghai and Beijing has reached the level of New York, London and Hong Kong.

The red-hot property market is hardly sustainable, most economists believe, for any healthy market must be centered on true consumption, while not speculation and manipulation by a handful for hefty profits. The Central Government's latest aggressive move of hiking down payment and mortgage rates, and shutting the door to buying third or more housing, is clearly aimed at combating speculation and discouraging investment. The impact is to be seen.

If the gamblers dare to buy more houses with cash in their ultimate hope to control market supply and gouge prices, Beijing is believed to have stored more ammunitions, including levying a property tax, to strike on the group who take chance. In addition to fighting market malfeasance, the public expect the government to roll out more affordable housings later this year to meet the demand of the urban poor and new migrants to the cities. After all, it is China's healthy economy at stake.

By People's Daily Online


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