Business / Opinion

Putting house prices in order

By Yi Xianrong (China Daily) Updated: 2014-05-12 14:13

Local govts' attempts to prevent housing prices from falling will not succeed as market undergoes necessary adjustment

Housing authorities of Nanning, capital of the Guangxi Zhuang autonomous region, issued a document in late April that said residents with a hukou (household registration) in any of its five neighboring cities, such as Beihai, Qinzhou and Yulin, could buy homes in Nanning.

Putting house prices in order
Cooling property sector in focus as economy slows

Putting house prices in order
According to media reports, this is the first shot formally fired by a local government to rescue the housing market. To prevent speculation in the housing market and keep property prices in check, authorities in major cities have for years banned non-local residents from buying houses within their jurisdictions. Some earlier media reports had said that cities like Changsha, Hangzhou, Zhengzhou and Wenzhou were likely to relax rules for buying houses but relevant authorities denied them.

Some local governments, like the one in Nanning, however, have joined the race to relax rules for purchasing houses because they want to prevent housing prices from dropping steeply, for they fear that that will not only cause a drop in the local GDP, but also increase their fiscal risks many fold.

Over the past few years, land sales or bank loans against land mortgages have been behind the excessive credit expansion of many local governments. These local governments now fear that a drop in housing prices will dampen demand and thus reduce their fiscal revenues. They believe that only a rising - or at least a stable - housing market can cover their swollen fiscal and debt risks.

Given these conditions, can measures such as easing the requirements for purchasing houses in some cities guarantee the housing market's health? We can be pretty sure that housing prices in China have entered a "period of adjustment" after rising to dangerously high levels. In fact, we can expect a different type of price adjustment because housing prices are not likely to rise any further after going through the roof in the past decade.

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