Leaders must root out speculation from realty sector and apply sweeping reforms to ensure its healthy development

The developments in China's real estate sector over the past decade indicate that it has been largely swayed by government policies. So to get an idea how the real estate market will perform and whether housing prices will rise or fall in 2013, we should understand the government's housing regulations and the extent to which it will tolerate price rise, instead of only analyzing supply-demand relations.

A look at the current housing market will help us find clues to arrive at a judgment about the possible real estate policies the government will adopt this year. Data from the National Bureau of Statistics indicate that housing prices in 53 of China's 70 large and medium-sized cities increased month-on-month in November, compared with 35 in October.

A recent survey by China's central bank shows that 29 percent respondents believe housing prices will continue to rise in the next quarter - the figure is 10 percentage points higher than a year ago. In fact, rising housing prices have triggered panic-buying in some first-tier cities and attracted some non-real estate enterprises to the housing sector in the hope of making bigger profits.

The re-emerging frenzy in the housing market indicates the housing regulations, which have been in place for years, have failed to achieve the expected results. It also shows there has been no fundamental change in the housing market's speculative nature.

In a housing market rife with speculation, prices are usually decided by market expectations that expand the price bubble. But the expanding housing bubble and continuous price rise will touch the bottom line of the housing regulations and hamper the efforts of China's new leadership to promote its healthy development. Further increase in housing prices will be against the new leadership's economic strategy, which focuses more on quality development, and undercut its efforts to improve people's livelihood.

Recent reports of the monetary authorities and the Chinese Academy of Social Sciences both say high housing prices have already seriously affected ordinary people's livelihood and undermined their capability to buy a house. The excessively high proportion of income that ordinary people have to set aside to buy a house forces them to drastically cut their consumption in other fields, which is not good for the overall economy.

Skyrocketing housing prices have yielded considerable profits to developers, speculators and local governments that depend on transfer of land-use rights for a high percentage of their revenues. No wonder, some people's wealth has increased at an astonishing pace within a few years.