Realty market faces dilemma

A heated debate is raging on what should be the best policy for the housing sector in 2011 given the skyrocketing housing prices. The best strategy would be to avoid a hectic property boom, because the hope of reducing prices to solve the affordability problem is only an illusion.

According to the "Blue Paper" of the Chinese Academy of Social Sciences on the Chinese economy, housing prices will see a "retaliatory price rebound" in 2011 if the government were to relax measures aimed at cooling the market. Prices could rebound by 20 to 25 percent next year. The increase, however, has been forecast in the context of widespread 29.5 percent overpricing in 35 large and medium-sized cities, the "Blue Paper" said.

Clearly, the property boom will not be driven by robust and rational demand. Last year, we could blame the inflow of capital into the property market because of the sluggish export-based manufacturing industries and hence the shifting of capital investment from the real economy to "fictitious accumulation" and "international hot money". Subsequently, the government adopted more stringent measures to constrain capital shift, thus cooling down the housing market this year.