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People's Daily Online>>China Business

Risk of 'chaos' cited over high home prices

By Wang Yanlin (Shanghai Daily)

08:41, March 15, 2012

China's home prices remain far from reasonable levels, and the government won't relax restrictive policies because that would risk "chaos" in the market, Premier Wen Jiabao said yesterday.

"We are determined to curb speculation in housing and have taken targeted measures, so there is a ray of light among all the difficulties," Wen said at a wide-ranging, three-hour news conference at the end of China's legislative session.

"We can't ease property-control measures. Otherwise, it will wipe out all our previous efforts and may cause chaos in the market ... even drag down the entire economy," Wen said.

He explained that "reasonable" home prices should have a suitable correlation with people's income, and with developers' investment and profit as well.

Purchases of new homes in China saw double-digit declines in both volume and value in the first two months of this year after austerity measures were strictly in place since January 2011. The measures include higher down-payment and mortgage-rate requirements, the imposition of property taxes in Shanghai and Chongqing, and restricting multiple home purchases in nearly 40 cities.

Wen said China's economy requires a sustainable, stable and healthy property market.

"For a populous country with more than 1.3 billion people, while it's in the middle of vast industrialization and urbanization, the huge demand for housing can't be changed and will last for a long time," Wen said. "People shall have their residence, but not necessarily own houses. A broad direction is that people should be encouraged to rent homes," Wen said.

There had been some expectation of loosening property policies after China's economic growth moderated. But Wen's remarks indicated there is no imminent relaxation of cooling measures, at least for the most of this year, said Cui Li, an economist at Royal Bank of Scotland.

Chang Jian, an economist at Barclays Capital, said, "The nation will see a further decline in property prices, especially in major coastal cities."

As for China's reduction of this year's economic growth target to 7.5 percent, Wen said the cut came mainly out of consideration for economic restructuring.

"Our economy should rely more on technology and improved skills among the labor force to achieve a growth of higher quality," he said. "A lowered target can help us to accelerate economic restructuring."

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elee at 2012-03-15183.39.48.*
There are several schools of thoughts on this housing or real estate market of China. One very telling scenario is a "market driven" theory where China or any nation needs to encourage home buyers and / or home ownerships by citizens and permanent residents of China as a way to generate productive investments to recycle a healthy "exchange of funds" to retain and maintain a growing market rather than a "dead one". That is, a nation should not intentionally kill a market sector since real estate is one of the greatest generators of domestic GDP factor plus tax revenues; and where such sector also multiplies employments and technological advances. However, the another important school of thought depicts a mixed picture of greed, debacles, dilemmas and obstacles where aggressive speculators are and will be willing to “punt” for short term benefits and longer term asset buildings. The short term punters or speculators are usually very aggressive and seen coming from Taiwan, Hong Kong, Macao and regional places like Singapore and Malaysia of various nationalities and corporations which all together are “culling” a booming housing market as China’s economical advantages and huge population are marching forward beating & whitewashing forecasts of western “experts/gurus” about a “doom or glut” in China. Neither a property market glut nor doom in China! Hence, CPC ought to revisit these schools of thoughts realistically on methods to “slow down” aggressive and greedy housing market players, including shonky & greedy developers, and as well to encourage home ownerships by its own citizens; whereas renting is less attractive to ownership eventually in order to support a healthy market development continuously. In cases of vacant properties with prices turned up 3 to 5 times in the last 5 years or so, developers and owners have choices to lower the home prices if sales are aimed at or to hold on to them as long term asset portfolio developments by lowering rental expectations for “break-even” returns. Banks have to function too as lenders to make money and soothe the flows of funds. CPC must also think about employment sector if this market is downed and out like those in the USA, particularly, if social domestic chaos is to be avoided.
helen at 2012-03-15203.82.87.*
There is no way that the government would relax restrictive policies on China"s home prices. With property speculations and unscrupulous developers always at large in Chinese cities, any relaxation would only attract profiteers and bring social unrest in China. The government must continue to curb both domestic and foreign hands in the property market in China.With the government"s target of 38 million affordable housing for the Chinese, and I hope this quota be raised with the help of all local governments and private sectors, China can succeed in providing cheap and affordable housing for all Chinese. The CPC will succeed in this ......
  

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