Opinion

The property price fever

(China Daily)
Updated: 2010-04-17 14:36

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Tightening measures to cool the sizzling real estate market are badly needed. Yet, to cure China's property price fever, Chinese policymakers need to come up with a more holistic therapy than the piecemeal approach they currently adopt.

In face of an 11.7-percent year-on-year rise of housing prices in 70 major cities last month, the biggest since July 2005, the central government decided on Thursday to raise downpayments and second-home loan rates.

By requiring certain homebuyers to pay more downpayments and higher loan rates, the latest move apparently underscored the central government's determination to prevent property bubbles.

However, it remains far from clear if such a targeted tightening measure can work its magic in curbing excess price hikes in the real estate market. Given that many previous similar efforts have only fallen far short of their goal of cooling the property price fever, it is no surprise that some people would be skeptical of the effect of the new policy.

The very importance of the property market is obvious. China's first-quarter gross domestic product data showed that property investment, up 35 percent year-on-year, ranked as the biggest contributor to growth.

That explains why Chinese policymakers have so far preferred gradual and targeted steps to broad and blunter instruments like higher benchmark mortgage rates. A sudden collapse of housing prices is simply not affordable for any country, not to mention during a recovery from the worst global economic crisis in many decades.

But the pressing problem for Chinese policymakers is how long the country can afford to allow real-estate prices to keep rising too fast. The growing personal and institutional financial risks are just one part of the problem. The impact of property bubbles on the society's entrepreneurship is less visible but can be more detrimental to the nation's long-term development.