China to curb home price surge

Source : Business Times – 16 Dec 2009

Cabinet pledges to promote healthy growth in the real estate sector

China’s economic planners have vowed to curb property speculation while downplaying fears that surging prices for real estate, food and other essentials may herald an inflationary spiral.

A statement by the main economic planning agency, reported by state-run media yesterday, outlined various reasons for price increases that contributed to a rise in the consumer price index last month, the first increase since January.

‘We believe that consumer prices will remain at a stable level for the near term and that there is only a slight possibility for serious inflation,’ said the statement issued late Monday by the National Development and Reform Commission.

After slowing in late 2007 through 2008, property sales bounced back this year. Prices have risen steadily since March, helped by lavish government support, tax cuts, a flood of bank lending, and strong interest from speculators who are said to be among the biggest buyers in Shanghai, the financial capital.

China’s cabinet, the State Council, pledged after an economic meeting yesterday to promote healthy growth in the real estate sector, promising a bigger supply of affordable housing as property prices in some cities soar.

The Ocean One luxury development in Shanghai sold 58 out of 67 units at an average price of 108,981 yuan (S$22,200) per square metre, according to the Shanghai government’s official real estate website.

The high prices paid for the apartments, located in a prime location near the Huangpu river and the city’s main financial district, helped raise the average price for real estate to a record 22,000 yuan psm last week, according to Shanghai Uwin Real Estate Information Services.

Housing prices rose 5.7 per cent year on year in November to a 16-month high and new construction rocketed almost 200 per cent, while sales nearly doubled.

Last week, the government re-imposed a 5.5 per cent tax on sales of homes bought less than five years earlier, moving to discourage speculative purchases.

‘Housing prices have risen too quickly this year, but since the property sector is crucial for China’s economy, the government will try to control it and ensure its growth is sustainable in 2010,’ Andrew Li, a partner at consultant PricewaterhouseCoopers, said yesterday at a briefing.

Until recently, declining prices were viewed as a greater threat to the economy.

China’s consumer price index rose 0.6 per cent in November, its first year- on-year increase since January, as prices for food, water, energy and other commodities rose.

Although the rise was modest, it was higher than expected and reinforced concerns among some economists over excess spending and investment in some industries, fuelled by the country’s four trillion yuan economic stimulus programme.

In its statement, the economic planning agency noted that some recent price increases for grain, oil, water and fuel were part of a long-term strategy aimed at raising farmers’ incomes and bringing state-controlled prices in line with market levels.

Bridging the gap between low-earning farmers and city dwellers is seen as crucial for boosting consumer spending to help sustain China’s long-term growth. Bringing the farmers into the cities is another part of that strategy.

But the country’s construction boom, focused mainly on commercial real estate, showcase projects and luxury villa developments, has long been out of sync with the push to step up urbanisation of the country’s rural majority.

The government has said that it would moderate lending and discourage investment in potentially unprofitable projects, and industries already glutted with overcapacity.

With prices for both new and existing housing shooting beyond the means of average wage earners, it has reiterated its plans to step up construction of less expensive housing.

The State Council, chaired by Premier Wen Jiabao, also said that the government would help 15.4 million impoverished households resolve their housing problems by 2012 and would encourage rebuilding or other improvements for urban ’shanty towns’ housing some 10 million households, according to a statement posted on the government’s main website.