Check zooming property prices

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By Ma Hongman (China Daily)
Updated: 2009-11-03 08:21

The soaring housing prices in Shenzhen once again highlight the importance and necessity of putting in place an effective supervisory system to oversee the implementation of relevant State documents to rein in the country's speculation-prone property market.

Housing prices in the booming southern city have risen at an unbelievable pace over the past few months. According to data released by the city's planning and land commission, local prices of newly-built homes rose to a record 20,940 yuan ($3,066) per sq m on average in September, a drastic 68.45 percent rise over a year earlier, in defiance of a steep sales decline. Statistics also indicate that property prices in the country's first special economic zone have kept climbing in the past seven consecutive months, with a total 91 percent over the February figure.

The latest round of drastic price hikes is even beyond the previous market expectations. Between the end of last year and early this year, most people were still forecasting the real estate market in terms of the extent to which Shenzhen's housing prices would drop. A majority of developers were acutely pessimistic about market prospects and then took available means to sell completed houses to accelerate the return of invested fund as early as possible. At that time, the property news that often hit the headlines were largely similar to the claims that "home prices keep declining" and "entrapped home buyers breach contracts signed with developers and want homes to be returned".

Things changed dramatically in a little more than six months. The question is what factors contributed to the abrupt reversal of the tendency and fueled a fantastic price rise in the past months. Undoubtedly, a scientific probe and analysis will help the authorities effectively curb the latest round of irrational rise in home prices.

The upward tendency in housing prices in the past months should be mainly attributed to the failed implementation of the country's restrictive credit policy on second-home buyers. In September 2007, China's central bank and the China Banking Regulatory Commission jointly issued a document aiming at strengthening management of the country's commercial housing credit. Together with the subsequently drafted details on restricting second-home buying, it transmitted an unequivocal message that the government would tighten the over-heated property market, thus resulting in a one-year-long market adjustment since then. However, this tendency was brought to an abrupt end because domestic commercial banks relaxed their implementation of restrictive credit measures on second-home buying. According to some media reports, such clauses, contained in the central bank document as stipulating that second-home buyers should pay at least 40 percent of their price upfront and should be charged an additional 10 percent higher interest rate, have not been effectively implemented by commercial banks in the city since the end of last year. Buyers, no matter how many houses they have purchased, could still enjoy the "20 percent for down payment and 70 percent off the fixed interest rate" preferential policy. As a result, speculative housing demands in the city have been rapidly magnified, which, aided by the inflow of a lot of credit funds, have directly pushed up local housing prices. Worse, although the authorities have resolved time and again to strictly implement the second-home lending policy, the unrestrained credit offering to home buyers, either for self-occupation or investment, is very common in Shenzhen. According to Shanghai Securities News, reporters got an "absolutely no problem" reply when they gave phone calls to some commercial banks in Shenzhen and asked whether second-home buying could enjoy a preferential credit policy.

It is indeed a pity that the country's restrictive credit policy aimed at curbing speculative behavior in the housing market failed to be effectively abided by. Its effective implementation could on the one hand encourage self-occupation demands and curb speculation. On the other hand, it could help prevent credit from being used to bolster the heated property market and bring the irrationally high prices down to a reasonable level.

However, the global financial crisis disrupted the authorities' efforts to implement the tightened credit policy. Given the enormous role of investment in the real estate market in optimizing the country's total investment data, competent State departments and local enforcement agencies have intentionally or unintentionally relaxed supervisions over credit issuance. As a result, a rosy property market did promote optimization of the total investment data, but also twisted home prices. The intolerably high home prices have not only dampened people's consumption but have also negatively affected the quality of the country's economic recovery.

If some minor irregularities are tolerated at the time of a severe financial crisis, then we have no excuses to defend our current credit irregularities and our failure to implement effective financial oversight at the time when the country has realized its originally designed macroeconomic policy target.

Undoubtedly, China's financial and banking watchdog is potent enough to curb the country's unchecked lending spree if severe punitive measures are adopted to stop those irregularities. But the problem is that no one involved in lending irregularities on second-home buying has received deserved punishment since the promulgation of the Central Bank's document in 2007.

The author is an anchorman with the Shanghai-based China Business Network.

(China Daily 11/03/2009 page9)