Policies lower home prices, bewilder buyers

After tightening its control policies on the real estate market in 2010, the government has been able to largely rein in run-away growth in home prices, at least for the moment. According to figures released last week by the National Bureau of Statistics, 53 out of a statistical pool of 70 major cities recorded year-on-year declines in new home prices in August; while three remained unchanged and 14 posted annual price increases of no more than 1.3 percent.

Behind these results, of course, are the stringent regulatory measures of the central government - including purchase restrictions and the introduction of property taxes in certain locations. Yet, the constant policy adjustments made by various local governments in order to cool the market have sent potential home buyers confusing signals about future trends.

Purchasing a home is one of the most important decisions a family can make - especially in China, where buying an apartment may wipe out a family's savings. Frequent changes to the rules governing local housing markets have further complicated matters for families, making it difficult for people to make reasonable judgments when it comes to their financial planning. This is why irrational behavior on the part of home buyers and owners always follow soon after every new regulatory adjustment.

For this reason, it is crucial for government authorities to stabilize the public's expectations of what the future market has in store by adopting consistent and unified control policies.

Meanwhile, policy makers should also clearly state the purpose and target of any new market curb they plan to execute. Failing to do so will only keep home buyers trapped in a maze of highly uncertain and perplexing regulations.

Take property taxes for example, which many experts say should replace the current restrictions on home purchases and become the primary tool to keep housing prices in check. Actually, reports recently emerged that China would expand its trial property tax program outside of Shanghai and Chongqing. Yet, with property tax policies in the two cities so different, it's not appropriate to spread this program.

In Shanghai, property taxes are levied on new second homes with more than 60 square meters of floor space per family member. In Chongqing though, property taxes are placed on all new high-end homes priced at twice the average cost of a new home.

The two different taxation systems in the two cities reflect a lack of cohesive standards in the trial program. In my opinion, before rolling out more diversified taxation systems in more cities, several questions should first be answered. For instance, what kind of results are the taxes aimed at achieving? What kind of properties should be taxed in the first place? Are property taxes considered a kind of consumption tax?

Without being more explicit with their policy intentions, it will be impossible for regulators to stabilize the market in the long run. This will result in more speculation, which will further misguide real home buyers and hurt the healthy development of the property market.