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Reining in House Prices
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The State Council's 15-point regulation issued on Monday is a much-needed set of measures to cool down China's overheated real estate market, but it will not solve all problems related to house prices.

Nine ministerial departments jointly came up with these new measures, which target both supply and demand, and are intended to put some flesh on the bones of the State Council's renewed vow to rein in runaway property prices.

The speed as well as the scope of the latest policy response might cause a sigh of relief to come from many of the nation's low- and middle-income households.

The prompt delivery of these tightening measures shows that the departments in question have already reached a consensus on the urgent need to increase the supply of affordable homes, and will take other steps to ensure the property market's healthy development.

The central government has made June 1 the starting date for local governments to make 70 percent of their annual land supply available for the development of low-cost housing.

By doing so, the central government has demonstrated its desire to adjust the structure of housing supply, one that has been excessively tilted against low- and middle-income households.

Meanwhile, the comprehensive nature of these new measures indicated that policy-makers are improving their grasp of the various but interwoven causes of emerging property bubbles.

For instance, an increase in mortgage down payments is aimed at holding back a part of demand boosted by the self-fulfilling prophecy that house prices will only climb higher and higher. The policy will also force domestic banks to reduce their exposure to housing loans. Warning lights are already flashing red as lending to both house buyers and property developers grew explosively against the backdrop of the country's macro-economic controls.

And new measures to prevent property developers from issuing misleading sale information are also long overdue.

China's ongoing urbanization drive and the public's desire for better housing are the most powerful forces currently driving the nation's booming property market.

Yet, housing prices have become a particular public concern because of their unchecked hikes, especially in some major cities.

If rocketing house prices cannot be brought under control in a timely manner, the property sector will be unable to continue its healthy development, never mind continuing to act as a key engine in the national's economy's long-term growth.

The success of this round of government efforts to tame the overheated property sector will be determined by the rate of future price rises.

The central government has been trying, without much success, to rein in soaring property prices since early 2005. This bitter truth bears out not only the difficulties to achieve this goal, but more importantly, the necessity of ensuring the aggressive and credible implementation of established policies.

Had many local governments thoroughly carried out the policy to significantly increase supplies of affordable housing, local house prices would not have rallied so vehemently.

Now, as policy-makers once again hit the brakes, they need to look very closely to ensure the new measures work as expected.

(China Daily May 31, 2006)

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