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Evidence of underhand dealing is glaring. In 2006, land purchased by developers dropped by 4.4 percent year-on-year but the land used for development rose by 20 percent, suggesting that significant amounts of land had been hoarded for future development when prices were higher.
The acute shortage of affordable housing for low- to middle-income Chinese shows no sign of abating. The supply is estimated at only one-fifth of total demand.
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The government has repeatedly warned that the size of low-cost apartments should be less than 80 sq m. But the average size of residential properties sold on the market in 2008 was 92 sq m, far beyond the reach of low-income households.
Greed among the rich is rife and China is now one of the most unequal societies in the world.
Chinese investors adopt a highly irrational approach to moneymaking: They are envious, greedy and speculative. Lessons from the 2007 stock market bubble, and the subsequent fallout, have not been heeded. It is the Chinese people who are inflating the housing bubble as they seek more attractive returns than those offered by low-interest saving accounts.
The consequences of a realty crash will be far greater than those that followed the stock market collapse.
Real estate has become a pillar industry for China's economic growth. Investment in real estate development accounted for 18.7 percent of total fixed assets investment in 2009. Combined, the real estate and construction industries contribute more than 10 percent of GDP each year. By the end of 2008, more than 2.1 million people were employed in the real estate industry.
So what can the central government do about it?
It needs to develop a comprehensive, commercialized house renting system to change traditional thinking that affordable housing can only be sold but not rented.
Closer central government supervision of how local governments implement wide-ranging, low-cost housing programs is necessary to avoid a repeat of past corruption.
I have long argued for a progressive tax policy to be applied to three categories of housing based on floor space.
Owners of apartments of less than 80 sq m would not be required to pay taxes and would enjoy a low deposit requirement, while owners of luxury houses would be faced with heavy taxes and punitive mortgage rates.
The fear though is that these long-term measures, even if implemented, will come too late. If the bubble bursts, Chinese society will become ever more polarized, posing a very serious threat to stability and therefore China's future growth prospects.
The author is head of the School of Contemporary Chinese Studies at the University of Nottingham, United Kingdom.