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Gov't Steps in to Curb Soaring Housing Prices

The soaring cost of housing in recent years has prompted the government to step in.

Last month, the People's Bank of China (PBOC), China's central bank, tightened its grip on property loans, barring commercial banks from lowering interest rates on consumer housing loans to below 0.9 percent of the PBOC's benchmark rates. It is also encouraging them to raise down payments from 20 percent to 30 percent in cities where the property prices have been rising too fast.

The move is just one of a combination of control measures implemented by the government in an effort to ensure healthy development of the real estate market.

Improve housing supply. The current housing supply structure is irrational, with medium and low-cost residential properties accounting for a comparatively small proportion of the total. Investment in development of economy housing shrank in 2004, accounting for just 4.6 percent of all such investment and down from 6.1 percent a year earlier. In some areas, construction of economy housing has been banned.

In contrast, there has been an increase in the supply of non-residential buildings and high-end residences.

Authorities are to see to it that the construction of moderately priced and economy housing increases while non-residential and high-priced residential development is curtailed. Land and resource departments at all levels are to stop supplying land for high-grade villas.

Experts also suggest standardizing the rental market and developing moderately priced residential properties to encourage low and medium-income families to rent houses.

Adjust land supply. Some property developers deliberately slow the pace of construction and sales and even hoard land for speculation. This spurs consumers to purchase prematurely or over their heads for fear of further price rises, thus worsening the supply-demand imbalance.

While the government increases the supply of land for middle and lower-end buyers, it will also encourage the development of unused land to increase supply.

The Ministry of Construction will more closely manage the issuance of building permits and control the pace of construction to eliminate hoarding.

Land and resource departments will continue to sell commercial land through such means as auctions to create an open, equitable and fair market. Optimized and rational development of unused land will increase both actual land supply and utilization efficiency.

Some analysts suggest accelerating the setup of a land proceeds fund, defining the proportion the government can take out to prevent local governments from excessive reliance on land sales. A portion of the fund should also be set aside as a stable housing guarantee.

Curb speculation. Speculative investment in housing has become rampant in some areas. Some institutions and individuals use enormous amounts of bank loans for this purpose and some foreign capital has flowed into the real estate market for speculation, pushing housing prices up in some cities.

At present, property taxes are mainly levied on developers, which transfer them into development costs. However, no taxes are levied on housing ownership and transfer, providing incentives to buy.

In addition to tightening its grip on loans, the government will consider levying taxes on ownership and transfer to cool the buying fever.

Restricting the influx of foreign capital and widening financing channels into such areas as real estate investment trusts might also weaken demand, according to some experts.

Curb local government price inflation. In many places, land sales provide an important share of local government revenue. Some local governments even work with property developers to manipulate bids in order to sell the land at high prices.

The government will use economic, legal and administrative means to curb this phenomenon.

The experts say that making local governments responsible for real estate prices and assessing their job performance by whether they can ensure an adequate supply of affordable housing is another way to attack this issue while ensuring access to housing for lower-income families.

(China.org.cn by Yuan Fang, April 8, 2005)

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