Home price rebounds create paradox for gov't policies

Strong rebounds in China's home prices have again put the country's policymakers in a difficult position as how to uphold the economy's growth while keeping the property market in check, delegates said at an ongoing forum.

Less than six months after the government's move to increase the stakes in control over the property market in March, residential home prices seemed to risk spiraling out of control again.

"Market expectations of further home price hikes are growing in many cities, indicating that the central government shouldn't relax its controls," Zhu Zhongyi, vice president of the China Real Estate Industry Association, told 2013 Bo'ao Real Estate Forum held in south China's resort city of Sanya.

Recent months have seen a drastic surge in home purchase demand, especially in first-tier cities. On July 20, a real estate project in Beijing sold all of its 1,462 apartments in one day, with sales revenues hitting 3.79 billion yuan (614 million U.S. dollars). It was the single-day sales record for a real estate project since 2012.

Data from the China Index Academy showed that the average price of a new home in the country's 100 major cities rose for the 14th month in July to reach 10,347 yuan per square meters. In the period, ten big cities including Beijing and Shanghai saw their average home price go up 1.34 percent from the previous month to 17,609 yuan per square meters.

"The central government will face greater difficulties in capping real estate prices if it doesn't move to strengthen the responsibilities of local governments in coordinating housing supplies and stabilizing land prices," Zhu warned.

High hopes have been pinned on new tightening measures unveiled in March, which were dubbed as "the strictest ever control policy" by the market, to rein in the country's red-hot home prices.

According to the measures, local authorities were asked to significantly increase the income tax on the profit homeowners make from house sales, and raise the down payment and mortgage loan rates for buyers purchasing a second property.

The measures have underlined the government's tightening efforts. Since 2010, it has introduced a raft of control measures, including third-home purchase bans, property tax trials and construction of low-income houses.

However, as revenue from land sales is an important contributor to fiscal incomes, local authorities have been acting reluctantly to implement central government policies, which have offset the effects of the measures.

The central government has repeatedly stated its stance in property market control over the past years. But a recent statement released after a meeting of the country's central authorities, which mapped out the economic work in the second half of this year, did not mention regulation over the sector, leading to suspicions that China may intend to loosen control to prop up growth.

The message was further amplified by media reports that Wenzhou, a city known as the cradle of China's private businesses, has eased its grip over a purchase ban because of sharp declines in the city's home prices since the ban was introduced. But it is yet to know whether the move will be supported by the central government.

Lian Ping, chief economist at the Bank of Communications, said in an interview with Xinhua that it is too early to say whether the gesture means loosening. But given the current economic condition, the government will neither tighten the policies, nor will it withdraw existing control measures.

The growth of the world's second-largest economy has been stuck in a protracted slowdown, easing to 7.6 percent in January-June of 2013, the weakest first-half performance in three years.

Fan Gang, an economist and former advisor to China's central bank, said that considering contradictions between the country's limited land resources and a large population, the loose liquidity condition and the big gap between rich and poor, the government is unlikely to remove control over speculative purchases in the short term.

To get the country's real estate sector back on track, the government should quicken efforts in establishing a long-term mechanism that gives full play to the role of the real estate sector in facilitating the country's urbanization process, forum delegates said.

According to Zhu, such a development plan is likely to be unveiled in the next three months. The plan will not only adopt economic means such as taxation and credit policies to regulate the market, but will also create policies to improve the housing and land supply systems.

But the establishment of such a mechanism will take years, because the measures require a string of supporting reforms, he said.

The current control measures, most of which were administrative means, have been widely criticized for only temporarily reining in home prices, as drastic rebounds could arise once they are lifted.

Shen Jianguang, chief economist from Mizuho Securities, said that the transformation of the real estate sector is intertwined with China's economic restructuring, especially at a time when the manufacturing industry, a traditional backbone sector for the economy, was weighed by over-production.

"We should neither deny the role of the real estate sector in boosting its related industries and consumption, nor turn back to stimulate the sector. The government should combine its efforts of securing growth and popping the sector's bubbles," said Shen.

Shen said that the forthcoming mechanism, which will adopt a national property tax system designed to entrust local governments with more financial powers, will let the real estate industry support the economy's growth without accumulating bubbles.

"The implementation of the mechanism will help nurture the healthy development of the sector and reduce the uncertainties brought by administrative intervention. In that case, the miracle that China's house prices will never drop will end," Shen said.

The annual meeting of the forum, the 13th of its kind, has been serving as a platform for officials, experts and industry leaders to discuss the development of the country's real estate sector. The four-day meeting, which began on Tuesday, has attracted nearly 1,000 participants this year.