Chinese Mandarin - Local price caps prove unhelpful

Opinion / You Nuo

Local price caps prove unhelpful
By You Nuo (China Daily)
Updated: 2006-07-13 05:53

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.

Email: younuo@chinadaily.com.cn

(China Daily 07/13/2006 page4)

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