China struggles to reduce housing prices

08:14, April 02, 2011      

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China faces a significant challenge as local governments have failed to please home buyers by rolling out home price control targets linked with economic growth or disposable income growth, experts said on Friday.

"Local governments have to make a tough choice between netting revenues from selling land to property developers and curbing home prices, as they were asked to do by the central government," said Cao Honghui, a senior researcher from the Institute of Finance and Banking under the Chinese Academy of Social Sciences.

Earlier this year, China's central government asked local governments to set new targets for controlling housing prices for 2011 before April 1.

With the public anticipating falling prices, 100-plus cities posted their targets as asked, seeking to link the targets with gross domestic production growth and disposable income growth.

Only the municipal government of Beijing clearly promised to maintain the home price stable or even lower than the current level.

The increasing role of real estate in local economies and public finances justified local governments' choices, said Cao.

Local governments have been increasingly relying on property sales for funding. China's property sales increased 70.4 percent from year to year to reach 2.7 trillion yuan (412 billion U.S. dollars) in 2010, said authorities from the Ministry of Land and Resources (MLR) earlier this year.

The State Council, or China's cabinet, wants a public promise from local authorities to regulate housing prices in a bid to slow down the expanding real estate bubble and decrease prices.

Although Beijing municipal government's vow won applause from many and was proclaimed as exemplary, experts believe that the priority for local governments is to build enough affordable housing.

"China should formulate a parallel system in the property market -- affordable housing and commercial housing -- to meet low-income residents' demands and the demands of others for improved housing and investment," Cao said, adding that increasing the supply of affordable housing will ultimately lower overall housing prices.

China plans to build 10 million affordable housing units this year, a plan which is part of a larger commitment to construct 36 million low-cost homes over the next five years.

When completed, the program will account for 20 percent of the country's total housing, Chinese Premier Wen Jiabao said last month.

The government will secure empty land for the construction of affordable housing, according to a statement from MLR officials earlier this year.

The plan to build 10 million affordable homes in 2011 will range in cost from about 1.3 trillion to 1.4 trillion yuan. Of the total, 500 billion yuan will be provided by central and local governments, and the rest will be raised by public institutions and businesses, said Qi Ji, vice minister of housing and urban-rural development in a statement last month.

"The key now is to take concrete steps to make sure that affordable housing benefits low-income applicants," said Ye Tan, a financial commentator. ' In addition, experts believe the central government will continue to counter speculation by strictly implementing new tax policies and purchasing limits.

In the past few years, the central government has stepped up measures to rein in soaring housing prices, a primary source of public complaint in major Chinese cities. However, property prices have remained stubbornly high.

Source: Xinhua
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