Tight lid on property prices

Easing the housing bubble will benefit economy and millions of ordinary people across the country rather than speculators

The recent reiteration by the top authorities that they will press ahead with the tightened real estate regulatory policies has disheartened developers who wanted the tight lid on the domestic housing market to be lifted amid signs of an economic slowdown.

At a press conference after the closing of the annual session of the National People's Congress on March 14, Premier Wen Jiabao told Chinese and foreign reporters in a straightforward manner that China's current house prices are still far from returning to a reasonable level and the country will not slacken efforts to regulate the sector.

"Reasonable home prices should match residents' incomes and should be proportional to their investment and profits," he said.

The experience of many developed countries indicates that reasonable home prices are usually three to six times a yearly household income. The ratio in some of China's first-tier cities, such as Beijing, Shanghai and Shenzhen, however, has reached more than 15 and even 20 times yearly incomes. That means the current home prices in the three Chinese cities need to decline by at least 50-60 percent before they return to a reasonable level.

But considering China's distinctive national conditions, such as its expanded demand for housing brought about by its accelerating urbanization, the widely applied international measurement is not always applicable to China. However, its mentioning by Premier Wen is still an unequivocal reflection of the Chinese authorities' dissatisfaction with the current high house prices and its unwavering determination to return them to a comparatively reasonable level.

The home prices to income ratio is seldom mentioned by China's top leaders on public occasions and thus its mentioning by Wen had huge repercussions. Following his remarks, prices of property stocks on the Shanghai Stock Exchange plummeted amid concerns over the approach of a cold winter for the housing sector in the months or years ahead.