Build affordable houses

Henan province's latest attempt to urge banks to offer steep mortgage discounts for more loosely defined first-time homebuyers is a fresh sign that local governments around China are looking for ways to rekindle the property market.

Given their dependence on land and property sales for much of their revenue in recent years, local officials' desire to restart a property boom is understandable.

This is particularly true of less-developed areas such as Henan where the average price-to-income ratio for houses has never reached the jaw-dropping levels of Beijing and Shanghai.

However, for Chinese policymakers, who launched a national campaign two years ago to prevent house prices from spiraling out of control, it means their battle against a devastating property bubble is far from over.

The bitter experiences of other countries have shown how the bursting of property bubbles can cause fiscal and economic abysses. China must avoid such a disaster, not only to advance its long-term development, but also to save a much-needed growth engine.

Hence, in spite of the growing short-term pain that a self-geared cool-down in the real estate industry has imposed on the national economy, the central government should not backpedal in its fight against a property bubble.

With China's economic growth slowed to a near-three-year low of 8.1 percent in the first quarter, some local governments have been tempted to boost the property market as an easy way to spur economic growth and raise revenue.

Earlier this month, Shijiazhuang, capital of Hebei province, tried to relax controls over the purchases of third homes, although it was quickly stopped by a higher-level administration. Now, Henan province is again testing the central government's resolution.

Admittedly, house prices have been dropping for nine consecutive months and wages have been climbing across the country. But both are not happening fast or long enough for the country to engineer a smooth housing market correction.

If the current control policies are loosened prematurely, it is possible that the property market will rebound sharply to destroy the hard-won public confidence in the central government's ability and determination to avoid a dangerous property bubble.

Local governments have a good reason to worry about weak construction activity. Yet, instead of loosening property policies to allow prices to soar beyond the reach of all but the richest few, they should really focus on urging developers to increase the construction of cheaper homes for the many.

(China Daily 06/28/2012 page8)