Balancing growth and realty prices
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In March, property prices in 70 Chinese cities rose by a record 11.7 percent year-on-year. In response, the government issued a series of measures to curb the housing market amid concern over asset bubbles.
The next month, however, housing prices rose 12.8 percent year-on-year, raising fears over the overheated property market.
After the People's Bank of China raised the reserve requirement ratio for major banks by half a percentage point in early May, property stocks were expected to drop further. And the Shanghai municipal government is likely to follow the example of Beijing and Shenzhen and issue regulations to curb speculation and rising prices in the property market.
Why have prices risen so sharply and what could be done about it?
Soaring prices characterize primarily residential properties - especially the high-end segment of the most prosperous first-tier cities. In the West, the great urban centers - from Paris to New York City (even Tokyo) - evolved into great metropolises in the course of centuries. In China, first-tier cities such as Beijing, Shanghai and Shenzhen are morphing into global cities in barely decades.
Understandably, first-tier cities' residents would like to own an apartment in their home cities. But these cities also attract the wealthy from across China, prosperous investors from East Asia and multinational property companies from around the world.
Besides, speculation, the desire for long-term investment and few investment instruments contribute to high price-to-rent ratios. Even buyers contribute to soaring prices. To facilitate the marriage of their sons or daughters, parents are often willing to invest their savings in real estate. As young couples and their parents put income and savings to buy apartments, the already high prices are driven even higher.
Apart from great demand, the soaring prices reflect supply dilemmas, too. Currently, residential real estate development is geared to high-end and high-margin properties, which ensures a significant cash flow in cities. As long as high-end real estate offers high margins, and affordable housing does not, local governments that hold the land rights have a strong incentive to prioritize luxury projects.
The central government seeks to sustain real estate market development and thus to support growth, which is critical for the country's economy. It seeks to ensure affordable housing, too, which is vital to Chinese people. As debt problems escalate in the West, reconciling these goals - economic growth and affordable housing - becomes difficult, but important.
According to Asian Development Bank, several policy measures could support existing measures.
