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People's Daily Online>>China Business

Making homes affordable

By Wu Yixue (China Daily)

13:46, April 15, 2012

Although house prices are falling, more measures are needed to raise people's earnings so they have the money to buy

The continuing decline of home prices seems to confirm the right direction of ongoing real estate regulations, but the government should not depend on housing regulations alone to attain its target of promoting a reasonable price-to-income ratio. Practical measures are also needed to substantially raise residents' incomes as a way of lowering the current high ratio.

Practices in developed countries indicate that the median house price usually ranges from three to six times the average household income. The ratio, however, is more than 15:1 and even as high as 20:1 in some of China's first-tier cities, such as Beijing, Shanghai and Shenzhen.

At a press conference after the closing of this year's session of the National People's Congress in mid-March, Premier Wen Jiabao said current domestic house prices are still far from a reasonable level and that home prices should be in line with people's incomes. Wen's comments demonstrate the central government's firmer-than-ever determination to press for a deeper decline of the still unendurably high home prices.

According to the latest statistics from the Beijing municipal real estate association, the price of newly built commercial houses in the capital, which has been regarded as a weathervane of the country's housing market, was 19,516 yuan ($3,088) per square meter in the first quarter, a decline of 19.4 percent year-on-year. Yet despite this sizeable decline, 19,516 yuan per sq m is still far beyond the purchasing power of ordinary local households.

Statistics show that Beijing's per capita income was 32,900 yuan in 2011, a figure that means local reasonable home prices should be less than 6,000 yuan per sq m, or home prices should decline more than 70 percent to attain the desired price-to-income ratio of 6:1.

It is unrealistic to expect such a decline in house prices within a foreseeable period of time. The country's real estate regulations are mainly aimed at curbing speculation, lowering house prices to a reasonable level and promoting the healthy development of the housing market instead of promoting a drastic decline in prices. At a time when the cost of land, an important component of current house prices, has failed to considerably decline, the unilateral drastic decline of house prices within a short period will result in a concentrated downfall of some housing enterprises. This will add to the risk of loan defaults and have enormous negative effects on construction, steel and other upstream sectors. As land sales constitute the lion's share of local fiscal revenues, a drastic decline in house prices would also severely test local governments.

Despite the adoption of a volley of combined regulatory measures, from credit tightening to targeted purchase restrictions and the experimental imposition of a property tax, domestic house prices have not declined to the extent expected. Thus, the government might as well take practical measures to raise people's incomes as a way of aiding its efforts to reduce the exceptionally high price-to-income ratio.

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