Op-Ed Contributors

Real needs of housing market

By Wu Fulong (China Daily)
Updated: 2011-03-02 07:43

This may not be a problem for those representing the very top end of the labor market such as expatriates, who often come with a company package of rental housing and children's education. In fact in many upmarket estates, foreigners live in houses owned by local Chinese. But the new housing policy may restrict middle-range employees or "talents" from settling down in Beijing. Because of the purchase restriction, the demand for houses to let is increasing which in turn is raising house rents. It is not clear how this demand for mainstream house rentals will be met.

Although the central government simultaneously announced the plan to construct 36 million housing units across the country for social rentals (gong zu fang) and cheaper rentals (lian zu fang) in the next five years, houses to let are subject to design and qualify control and may not be intended to cover or even satisfy all new migrants coming from other cities rather than rural areas.

The question is: Can the demand for mainstream housing be met by the government-initiated rental housing?

The restriction order is to prevent speculative buyers from entering the market. But it is hard to distinguish speculators from genuine homebuyers when they are buying a house. Though motivations for buying a house either to live in it or as an investment often overlap, it is possible to see them more clearly when properties are put up for sale.

After selling a second house, people could have to pay a capital gain tax, which is based on the difference of the buying and selling amounts. The restriction on buying or selling a second house, however, should not be limited to one city. Of course, it is easier to implement the regulation within the confines of one city. But the restriction on buying a second house should cover the entire country or, to begin with, all the cities.

The regulation is quite a challenge for the government because it would demand a unified national information system for property registration.

And when it comes to encouraging homeowners to put their housing units up for rent, the tax on rental income should be reduced.

Moreover, property tax is now being levied only in Shanghai and Chongqing, but it will soon be extended to other cities. Nevertheless, what the government really needs to do is to treat the cause of the property market bubble rather than its symptoms.

The restriction order is only a temporary measure and, as indicated by some officials, it will be eased when the property market cools down. But it is better to deepen the reform of the fragmented land and housing markets, instead of resorting to temporary quick-fix measures.

The author is a professor at and director of Urban China Research Centre of Cardiff University, United Kingdom.

(China Daily 03/02/2011 page9)