China's Dilemma of "Home Buying Wave"
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Published on Jun 19, 2012
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Since May 2012, China's real estate market is going up.
the "Home Buying Wave" seems to be coming back.
Experts point out that the Chinese Communist Party (CCP),
fearing people will protest against the high real estate prices, has to curb the real estate market' prices increase.
However, weak long-term real estate can't drive the demand,
leading China's economy to a dead-end.
In order to secure growth, the government had loosened
the policies on investment.
Nevertheless this is again used by interest groups,
to invest in real estate and push up the real estate market.
According to China's National Bureau of Statistics,
in May, housing turnover increased from 16.37 to 19.12%.
The price did not increase. Curbing the price and encouraging
sales is still the key strategy for the real estate market.
This year, China's central bank consecutively dropped
the deposit reserve ratio.
On June 7, the central bank announced interest cut
for the first time in three years.
This will help reduce the home buyers' mortgage burden,
and the rigid requirements for new home buyers.
Professor Xie Tian from University of South Carolina's
Aiken School of Business analyzed the issue.
Prof. Xie thinks that to promote high growth,
the CCP had loosened investment policies.
Large amounts of money end up in the interest groups'hands.
Real estate is the area targeted for highest profits.
Prof. Xie Tian: "China is in a dilemma
[on the real estate market issue].
On one hand, it does not want housing prices to be high,
in fear of people's dissatisfaction and potential protests;
on the other, it does not want the housing market to collapse,
which would destroy its banking and state-owned enterprises."
Prof. Xie also pointed out that China's economy
is in fact slowing down.
Production ratio, energy consumption,
and import and export are declining.
In this situation, the housing bubble can be very harmful
to the economy of China.
Prof. Xie Tian: "If banks get loose, inflation might get worse.
The CCP does not want this to happen.
I think if the housing market continues to heat up,
inflation might go even higher."
Prof. Xie said that each time Chinese Premier Wen Jiabao
tries to curb housing prices, interest groups would obstruct it.
Duan Shaoyi, lecturer at Bejing Normal University MBA,
and an assistant of China' renowned economist Mao Yushi,
also thinks the current "Home Buying Wave" is still a bubble.
The government is right to control the housing market,
but it is doing it the wrong way, the expert thinks.
Duan Shaoyi: "The government needs to guide the market
towards getting it back to normal.
It should optimize the use of market resources,
not correcting past mistakes by exercising control over it.
It should first legalize property rights,
and then privatize lands."
Some cities have slightly adjusted housing market,
and in certain way of loosing its control;
The bottom line of prices and policy seem had formed,
many home buyers are starting to worry.
Duan Shaoyi thinks people's irrational investing mentality
is also a reason for the housing bubble.
The site xinghua.net, CCP's mouthpiece, published an article,
in support of curbing the "Home Buying Wave."
It said, "Some people intentionally misrepresent policies,
with the hope to increase the home prices."
In this article, Ba Shusong, Research Fellow at State Council'
Development Research Center of Finances talks on the issue from the perspective of supply and demand.
Ba states that of the 4 billion square meters real estate,
built in 2011, only 1billion was sold.
Thus the ratio of supply and demand
does not seem feasible to change in the near future.
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