The art of realty control

Is the net finally closing in on property speculation following Beijing's latest control measure?

The minimum down payment on a second home in Beijing will be raised to 70 percent from 60 percent, effective from Monday, according to local authorities.

The move is the latest initiative in a crackdown on speculative home buying, which is deemed to be a major driving force behind the surging home prices nationwide in recent years.

In March the central government announced it will impose a 20 percent tax on capital gains from property sales if a homeowner sells a property within five years of its purchase. Major cities such as Beijing and Shanghai have followed suit and imposed other restrictions to dampen property speculation.

These measures show the authorities have realized the risks stemming from the continually rising house prices. House prices in many cities have risen sharply in the past 10 years, many by five times or even more.

The situation is set to become dangerous if house prices continue to rise unchecked. The experiences of Japan and the United States, both of which experienced a crisis triggered by an asset bubble, should not be ignored by China, a still developing and more vulnerable economy.

If the recent restrictions still fail to bring down prices, the trump card of a nationwide property tax should be used.

A national property information network is being created, which means that it will be feasible to extend nationwide the property tax currently being piloted in Shanghai and Chongqing.

But while policymakers cannot allow house prices to continue to rise for fear of economic downslides if the bubble bursts, given the importance of property-related industries to the national economy, it cannot afford house prices to fall too far.

As seen from the recent home price control documents, the authorities are seeking to bring house prices under control and stabilize them, instead of forcing house prices to fall.

Policymakers are walking a tightrope, while leniency or bad judgment have caused house price to rise wildly in the past years, any excessive tightening this time could lead to house prices taking an equally disastrous nosedive that will in turn be a heavy drag on the country's overall economic growth.

This balancing act is a real test for their art of policymaking.

(China Daily 04/09/2013 page8)