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House prices dangerous
2006-04-28
China Daily
Continuous house price increases will lead to a series of crises, says a signed article in Yanzhao Metropolis Daily. An excerpt follows:
A report issued by the Chinese Academy of Social Sciences entitled the "Blue Book of Real Estate 2006" predicts that China's house prices will rise over a long period.
Skyrocketing house prices in recent years and weak government control have led to much resentment among the public. If the prediction made by the academy is true, it may spark a series of crises.
The contradiction between real estate developers and ordinary people will be amplified. Middle- and low-income earners create huge market demand for low-cost economy houses while developers go after houses in the higher price bracket for more profits. According towww.xinhuanet.com, vacant house space reached 123 million square metres nationwide by the end of March. But about 70 per cent of residents cannot afford current house prices.
As this contradiction intensifies, people will panic and lose faith in commercial housing, which will further lead to high risk in the market. With more and more people shouldering the heavy burden of mortgages, the rich-poor gap will be enlarged in society.
The central government has issued many policies to curb house prices but local governments do not implement them in reality. Local governments benefit real estate development through land transactions. So further efforts are needed to ensure that the central policies are faithfully carried out.
If prices continue to rise, there will be a financial crisis for both real estate developers and commercial banks. By the end of last year, bad debts in this industry reached 109.3 billion yuan (US$13.5 billion). Vacant houses have taken up much of the country's financial resources. The State and banks will be affected most if the situation slides into crisis.
It is a pressing task for the central government to take action to curb house prices. It will be too late otherwise, when the prediction becomes reality.
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