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Local price caps prove unhelpful
2006-07-13
China Daily
Despite the prolonged protest against rising real estate prices, local administrators seem ready to interfere with the market more than ever before.
Last week, the first case was reported from Dalian, a port city in Northeast China, of a government price cap for one newly completed housing estate. But the Chinese-language news report was not really clear whether the price was set directly by some government office, and if it was, which office made the decision.
Though still considerably high by the local standard, at 5,300 yuan (US$654) per square metre, as compared with an average price of 4,748 yuan (US$586) per square metre, it may be a signal of more changes in the same direction.
At the same time, at a property industry job fair in Beijing, organizers saw a drop of 60 per cent in new vacancies from one year ago, especially among vacancies for salespersons.
Does this mean that in the area of housing supply, market competition will soon fall out of fashion to be replaced by distribution plans administered by the mayor's office in various cities?
This, if allowed to happen, would be a grave mistake. China is unlikely to see a much healthier housing system either by giving free rein to property developers or by allowing local governments to regulate supply and demand. In fact, many of the problems plaguing the housing system today are a result of local planning and land officials collaborating with their business cronies.
There is no need, either, to regulate the price of luxury housing projects.
In a city such as Dalian, units with a price tag of 5,300 yuan per square metre are unlikely to be purchased by factory workers, either older workers reaching retirement or younger workers recently arriving from the countryside.
What is the point, then, of setting such a price cap? Doing so can only let those who can afford the price, that is 5,300 yuan per square metre, earn more benefits and let those who cannot be even worse off.
Such a system would betray the central government's original purpose of stabilizing housing prices and providing more units for low-income families.
As can be seen from the Dalian example, the setting of price caps, especially by local officials on a case-by-case basis, will not necessarily benefit low-income families. Many other factors are more important, and much more needs to be done to really lead the property market onto the right track.
Even though property development is by nature a local issue, the central government will have to try to prevent local officials from developing too much of a friendship with developers in their respective localities.
The first thing to do is to have universal criteria to determine who exactly is a "low-paid worker" and can therefore qualify for low-cost housing.
This should be followed by a central government initiative to plan new cities, in addition to satellite towns for existing cities. In major cities such as Beijing and Shanghai, the central government may also have some development companies under its direct control.
And the method for setting land prices in a given locality should be determined by the local People's Congress, rather than the mayor's office. Local legislators can more effectively supervise the government, and remind officials of their public duty.
Public complaints about high prices should result in less, not more, involvement by local administrators in the real estate business.
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