By Ma Hongman (China Daily)
Updated: 2008-01-22 10:44

To a certain extent, the closure of the less competent real estate brokerages at this moment is solid proof that the bubbles in the market could break as quickly as they were created.

The fever in the real estate market was cooled down largely because the macro control policies succeeded in curbing speculation. At the Central Economic Work Conference in 2007, the authorities decided to shift the monetary policy from "prudent" to "tight" after nearly a decade of the former.

The central bank raised interest rates six times and lifted the rate of deposit reserves 10 times last year. The cumulative effect of these polices was reflected in remarkably diminished profit margins for real estate speculators and a significantly cooler market.

Another important signal for further policy moves is that Qi Ji, vice-minister of construction, openly condemned developers who had hoarded land and apartments or spread false information to create public fears of a housing shortage so they could drive up prices.

"The ministry is studying policy options to prevent developers from colluding in jacking up prices and to stabilize housing prices," he said during a symposium last week.

As a commodity that intimately affects the lives of common people, real estate is a key concern for the authorities.

If real estate prices extend beyond the reach of a large part of the population, people will have to save more of their incomes and reduce spending on other items if they want to have an apartment of their own. Confronted with high property prices and the need to set aside savings from their disposable income, many people find they have little left for their daily lives.

Had it not been for the many years of high housing prices, the recent increases in the cost of food would not have been so serious in the eyes of common people. So it is natural for the decision-makers to issue tough policies to regulate the real estate market and curb the price rise of housing.

Of course, it is inevitable that some people will be inconvenienced as the real estate market swings back onto a sound track of development. Real estate brokers and property developers will experience capital shortages as a result of the tight monetary policy and the employees of these companies could end up losing their jobs.

However, the process is inevitable in a market that has experienced a high-speed boom. When many of the market players are only after fat profits from speculation, vicious competition and many other violations become the rule.

Still, the current depression in the property sector could also be viewed as a prelude to the coming prosperity of the industry. After all, only the less competent players will be pushed out of business in a stagnant market. And the survivors will thrive and get strong again when the time is right.

From the perspective of policymakers, it is also necessary to work out countermeasures to cushion the negative effects of such a shock.

The author is an anchorman with China Business Network, a TV network based in Shanghai.

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