During the just-ended session of the National People's Congress,
Premier Wen Jiabao raised several targets for the government to hit
in controlling the overheated property sector.
His latest remarks emphasized raising the supply of property,
stabilizing property prices and developing reasonably priced
commercial housing for ordinary people.
The stress on increasing the property supply as the fix for
property prices is a remarkable policy shift.
The State has obviously realized that the single-handed measure
of curbing property prices does not work well. Instead, a rise in
supply will probably ease the momentum of rocketing property
prices.
Such a shift will prevail in the macro control over housing
estates for quite some time. The shift acknowledges that the
country has a strong demand for housing.
Boosting the property supply is a good resolution to the
problems troubling the estate market. Yet, the land for housing
development has become increasingly scarce, especially in big
cities.
A practical solution to significantly boost the housing supply
is to stimulate the sale of previously owned houses. Arrangements
should be made to facilitate such transactions by lowering
commissions, taxes and related fees.
Another important approach for raising the housing supply is to
break up the monopoly in the real estate markets by encouraging
developers of various business types.
Controlled by local government, land is the most important
factor in property development. As the demand for property
increases, land has become the source of big money for localities
after they sell the land to commercial developers at high
prices.
In fact, a city's property price has been seen to increase by at
least several percentage points once commercial estate developers
enter the local market. Price increases have been especially high
in mid-sized cities and provincial capitals in central and western
China.
Another obstacle to slowing the rise in estate prices is the
monopoly by commercial developers. The authorities should allow
individuals or companies to build non-commercial housing projects
as long as they are properly qualified.
It is an important condition for creating a housing supply
adapted to the needs of different social groups.
Commercial developers build luxury houses for the rich at market
price. Qualified enterprises provide affordable housing for their
employees at cost. The government builds low-rent houses or
low-priced houses for low-income earners.
There are individuals trying to work with other individuals or
companies to build their own housing, but few of them are blessed
with the support of local governments.
Many local officials do not want to see successful housing
projects launched by individuals because these projects are not
profit-orientated and do not contribute to the local GDP as much as
commercial housing projects.
To help eliminate these obstacles, the central government should
revise current policies providing incentives for local
officials.
As a matter of fact, the ultimate goal behind all the moves to
cool property prices is to enable most, if not all, people to
afford homes.
It is actually an impossible mission.
In the Hong Kong Special Administration Region of China and in
Singapore, there are government policies to help residents get
housing. Yet, these schemes are never meant to provide everyone
with a home at a low price. Instead, the Hong Kong and Singapore
governments offer apartments for residents to rent or buy.
These policies are often misunderstood by many on the Chinese
mainland, interpreting them as "every resident should own a house".
It is an unrealistic target in a market economy. The government
cannot force any businesses to drop their pursuit of profits for
the sake of maintaining social fairness.
The government should not target its housing policy at lowering
the property price to the level that every citizen can afford a
house. Rather, it should pay more attention to the public policies
related to estate development and try its best to offer diversified
properties to different groups.
Another important part of this effort is that government at all
levels should no longer regard the development of the property
sector as the primary engine for economic growth.
Many localities are hesitant to implement the measures to cool
housing prices because they contribute significantly to GDP growth.
When the central government no longer positions the estates as a
backbone industry in economic growth, local officials will drop
their concerns about the real estate industry's contribution to GDP
growth and make substantial efforts to stop the ongoing surge of
housing prices.
The author is a senior economist with the State Information
Center
(China Daily March 22, 2007)