The government must take measures to overhaul the industry and fulfill its commitment to affordable housing for all
The intensive policy measures recently undertaken by the central and local governments to curb soaring home prices and crack down on speculative purchases are expected to help contain property prices from spiraling, but thorough reform is needed to root out the problem.
China's housing prices have risen steadily over the past decade, but the drastic hike seen since the latter half of 2009 has caused widespread concern regarding a real estate bubble.
Besides their relevance to supply-demand imbalances, high housing prices are also closely related to the fact that the country's land, industrial, fiscal and financial policies have long run counter to public policies that improve people's livelihood.
Defects in the country's existing property development model and its management have also contributed to rising property prices.
In order to honor its commitment to provide at least one dwelling unit for each of its citizens, the government should have increased the pace of constructing lower-priced homes and taken more measures to keep home prices under levels acceptable to the majority of ordinary citizens, rather than choosing to inflate its coffers through taxation and land sales at high prices.
However, the real estate sector has for long been seen as a pillar of the national economy and an area to tap consumption.
Such a policy orientation has made the sector grow by leaps and bounds in recent years, which in turn has contributed much to the rising gross domestic product and swelling revenue from land sales of some local governments.
Land monopolies mean the country's real estate industry should not be taken as a full market player and that houses are by no means common property.
As a sector that is partly entrusted with guaranteeing and improving people's livelihood, the real estate sector should not be completely subject to market regulation.
However, China's property development has been completely run under market principles, and developers have used all means available to push home prices up in a bid to gain maximum profit.
Although ordinary citizens hope home prices will drop to a level that they can afford, any drastic decline will squeeze developers' profit margins, discouraging them from investing more in the sector.
Slowing rate of home construction will also reduce local government revenues and thus stall the rate of GDP growth.
If some real estate enterprises go bankrupt as a result of the slump in the industry, it will also compromise banks and other related sectors.
Due to such a complicated and intertwined relationship, it is natural for local governments, real estate enterprises and financial agencies, all of whom have a dominant say in the real estate market, to hold a passive attitude toward any measures that will potentially make home prices tumble.
To eradicate the conflict of interest between ordinary people, local governments, developers and banks, some sweeping reforms should be launched as soon as possible.
The country's ongoing adjustment of housing supply should be seen as an important step toward improving people's livelihood, and the supply of government-subsidized houses should be increased.
Compared with the proportion of government-subsidized houses in Singapore and Hong Kong, at 84 percent and 50 percent respectively, the Chinese mainland fares very poorly.
The authorities here should learn from Singapore's and Hong Kong's experiences as far as government-funded affordable houses are concerned.
At the same time, a set of sound systems should be institutionalized to regulate and monitor the sale and re-sale of these houses to prevent any malpractices and corruption in the process.
Effective measures should be taken to help extricate local governments from their long-standing dependence on land revenues.
To this end, the central government should adjust the current proportion of financial revenue distribution between itself and local governments in a way that will ensure that the latter have a sustainable revenue growth mechanism that is completely independent from past land revenue.
The current developer-dominated property model should be done away with and a multi-layer housing construction model set up in which not only developers but also the government and employing units can play their respective roles in home construction.
The long-prevailing unitary land supply system should be reformed and limitations should be introduced on land bids to ensure that lands targeted for the construction of people's self-inhabiting homes be sold at a reasonable price.
The country should step up its industrial restructuring and phase out the real estate sector from its list of national pillar industries.
Compared with information technology, bio-pharmacy and other hi-tech industries, the real estate sector has a lower technological content and thus plays a limited role in strengthening the country.
Given that its boom has been achieved at the expense of the country's resources and non-renewable land, the rapid development of the real estate industry will not last long.
As the world's third largest and to-be second largest economy, China should no longer peg its efforts to boost its national forces to a profiteering real estate industry.
In addition, a special government agency in charge of housing price regulation should be set up and new mechanisms to evaluate local governments' responsibilities and performances in the process should be incorporated.
The author is a professor at the School of Economics and Management under Shanghai-based Tongji University.
(China Daily 05/20/2010 page8)