Editorials

Op-Ed Contributors

Chinese Press

Columnists

LETTERS

Worrisome house prices

(China Daily)
Updated: 2009-08-18 07:53

A strong rebound of the property market should have been much anticipated as part of China's efforts to boost investment growth to fight the global recession.

However, since housing prices in major Chinese cities such as Beijing and Shanghai are rapidly approaching record levels, the recovery of the property market appears to have happened worryingly fast.

Worse, some people even predict that the average price of new houses in Shanghai could jump by another 20 percent this month to record a new high.

The inflow of international hot money, or speculative capital, is surely to blame for part of the recent surge in housing prices, which has fuelled widespread concern over a "bubble" in the sector. Given the better-than-expected performance of the Chinese economy in leading the way out of recession, it is not surprising that some international capital may have found its way into China's stock market or real estate sector.

Yet to prevent a new housing bubble, Chinese policymakers should not confine their focus on solely checking inflow of so-called hot money. The more important task is to increase substantially the supply of affordable houses while reining in domestic liquidity growth.

Latest statistics show that housing prices in China's 70 major cities grew 1 percent in July from a year earlier - the biggest increase in nine months. And, China's property sales surged 60 percent by value in the first seven months.

Overall, such a picture of the national property market does not look too troubling in itself. After all, a benign, and genuine, real estate boom would make the property sector a powerful growth engine to boost the national economy.

But when housing prices go through the roof in some major cities on the back of unprecedented credit expansion, policymakers must be extremely alert to the increasing risk of housing bubbles.

At this critical moment, when the economy is bouncing back from the slowest growth in a decade in the first quarter, China definitely cannot afford to put the brake on real estate investment. Such investment accounts for more than one-fifth of total fixed-asset investment.

Even if the country can cement its economic recovery in the coming months, the burst of a housing bubble would be too high a cost to bear.

Since the Chinese government has already made clear its determination to maintain a proactive fiscal policy and moderately loose monetary stance, the only way to tame the rising house prices is to increase the supply of affordable housing by a huge margin.

Massive construction of government-subsidized houses effectively kept real estate investment humming before the market bottomed out early this year. This is no time to go slow on such construction, especially as the market becomes brisk. More affordable housing projects are crucial to the healthy development of the property sector.

(China Daily 08/18/2009 page8)