Foresight needed on loan policies

China's central bank and the country's banking industry regulator are calling on lenders to expand the market for mortgage-backed securities, an exhortation which marks the government's latest push to reinvigorate lending in the housing market.

Hastily expanding China's mortgage-backed securities market simply for the purpose of bolstering the real estate sector could easily trigger unintended consequences. Given the immature capabilities of commercial banks and the lack of effective regulations to stave off risks, the reckless issuance of mortgage-backed securities might lead to a crisis in China's banking sector.

With the removal of home purchase restrictions and the relaxation of lending policies, the government's message is clear: it wants real estate prices to go up. All of its maneuvers and administrative efforts may, however, just be delaying an inevitable downturn.

In most cases, policies have a fleeting impact on the housing market. Certainly such tools would do little to fend off the explosion of a market bubble. This is perhaps especially true in China, where policy implementation has historically been weak.