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Housing Price Curbs in the Spotlight

China's central and local governments are showing their strong intention to adopt further measures to curb surging real estate prices in the country, although the central bank's housing loan interest rate and downpayment increase has yet to have any noticeable effect.

Sources say that the State Council sent a notice to local governments at the end of last month, demanding that local regulators work harder to rein in rocketing house prices.

The notice even says the authorities can temporarily suspend the examination and approval of some of real estate projects in cities where house price rises are at their most extreme.

But experts say market tools would be better than regulatory measures.

China's commercial lenders set their flexible interest rate on consumer housing loans according to their judgment of business risks and the debtors' situation in the wake of the central bank's policy on March 17 to prohibit commercial lenders from lowering interest rates on consumer housing loans to below 90 percent of its benchmark rates.

People buying second homes, luxury apartments or villas will have to pay the benchmark loan rate, with the downpayment being 30 percent or more.

Regulators have set even more stringent standards in cities where house prices have soared.

For example, in a bid to stop speculation in Shanghai, where house prices rose 15.9 percent last year, the biggest increase in the nation, 16 commercial banks will only allow mortgage transfers one year after the purchase has been made. And some of these lenders will charge 10 basic points more than the benchmark rate of 6.12 percent for those purchasing their third home.

"It's hard to obtain overall statistics about the real estate market showing the impact of the house mortgage rate adjustment because house prices are quite different in different cities, and only three weeks has passed since the mortgage rate adjustment," said Zhang Yan, an analyst at China Securities.

People should not expect house prices to fall as a result of the adjustment, which is intended to maintain price stability, Zhang said.

The adjustment is aimed to curb soaring house prices and develop a healthy real estate market with balanced supply and demand and moderate price increases.

Regulators can take other measures besides house loan interest rate and downpayment increases to develop a more balanced property market.

Seeking balanced supply, demand

The relationship between supply and demand plays a major role in deciding the house prices.

When people have a high expectation of house prices because of the shortage of housing, the price will skyrocket, said Yan Jinming, a professor at the Land & Real Estate Management Department of Renmin University of China.

"In cities where the lack of land supply is responsible for rocketing property prices, the local government should approve the use of more land to increase the supply of lower-cost housing," Yan elaborated.

The Shanghai municipal government had announced that it will approve 20 million square meters of land for the building of medium and low-price housing. Experts say this measure will help cool down property prices in the city.

Tax is also a useful tool in curbing soaring house prices. In Shanghai, a 5.55 percent tax will be levied on profits generated from sales of housing owned for less than one year.

The government can also impose a tax on home ownership to stem people's enthusiasm for investment in housing, according to Liu Haobo, an analyst at CITIC Securities.

A transparent information platform for developers and the house buyers is also important to help them to have a fair expectation of the market, Liu added.

A report by the research bureau of the People's Bank of China shows that the Consumer Price Index rose 2.9 percent during the first two months of this year and house prices will not fall in the near future because of the rising costs of building materials and labour.

"This is reasonable," said Zhang from China Securities.

(China Daily April 6, 2005)

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