BEIJING, April 22 -- Recent government measures to stem rising housing prices will change supply and demand to cool market expectations
       
        The State Council, the country's Cabinet, rolled out a series of harsh measures over the weekend in the latest bid to curb soaring home prices.
       
        In the past year, a string of policies and measures by the central government had failed to keep a lid on property speculation and an increasing number of ordinary homebuyers have become dissatisfied with the situation.
       
        The latest move shows that the central government will fundamentally correct the long-standing stereotype of the real estate sector as a pillar industry of the national economy, and as an effective tool to stimulate and regulate the country's economic development.
       
        A new approach has emerged among decision makers - that the housing problem is not only a major economic issue, but one that is closely related to people's livelihood and is likely to cause social instability if not handled effectively.
       
        The authorities are seriously concerned about the negative impact of high housing prices on the basic living conditions of the majority of ordinary people and the huge risks these pose to the country's financial institutions.
       
        The flow of excessive wealth into the real estate sector is also detrimental to the coordinated development of the national economy. The unprecedented importance attached by the central government to the risks of high home prices highlights top authorities' determination to cool widespread speculation in the sector.
       
        Expansive credit policy has proven to fuel property bubbles, at home and abroad.
       
        Statistics show that the volume of China's private loans from banks hit 2.46 trillion yuan last year, four times the amount of the previous year's 600 billion yuan. In the first quarter of this year, an additional 902 billion yuan of private lending was approved, more than twice the 422.3 billion yuan in the same period of last year.
       
        A large portion of the combined 3.4 trillion yuan of personal loans in the past 15 months have reportedly been pumped into the country's real estate market, directly fueling the rapid rise of property prices. The excessively loose credit environment since the latter half of 2008 has converted the country's real estate sector into a speculator's heaven, much like the stock market.
       
        In the latest regulatory framework, credit policies are being used as an important leverage to stem speculative activity. In the document, banks are required to raise the minimum down payment for second home purchases to 50 percent and the interest rate should be no lower than 1.1 times of their base rate. Even first-time homebuyers have to pay a minimum 30 percent down payment if their homes are bigger than 90 square meters. Commercial banks are also entitled to refuse loans to borrowers who cannot prove they have lived and paid taxes for at least one year in the city where they intend to buy their property, a move aimed at limiting mortgage-based home purchases by non-local residents.
       
        Along with a tightened credit policy, an increased down payment and higher interest rates for mortgage loans are mainly aimed at increasing the cost of real estate speculation and reducing such activities. However, such a credit policy is expected to only influence would-be home investors and speculators. It stops short of punitive measures against buyers who already have more than two homes and made huge profits from the market.
       
        Still, the adoption of a harsher credit policy aimed at increasing speculation costs and reducing speculation in the real estate market is expected to lower people's expectations on investment returns.
       
        Under this policy, investment-based purchases will possibly become one of the last batons in the race to push up housing prices.
       
        When a downward trend in home prices is detected, people owning more than two properties are likely to sell some of these to reduce possible risks from holding on to them. Any resulting panic among property investors will prompt them to sell "redundant houses" as soon as possible, thus increasing real estate supply against the declining demand.
       
        To rein in runaway prices, the State Council also renewed pledges to increase the supply of land for construction and accelerate the building of affordable housing. All these measures will undoubtedly strike a deadly blow to the long-standing, low-cost investment and speculative activities in the real estate market.
       
        Some local governments have also been accused of being behind soaring home prices over the past years.
       
        To help fight the problem, the State Council document has put more onus on local governments to curb home prices. Those who fail to do the job will be held accountable.
       
        The core of the latest regulatory measures is aimed at checking skyrocketing home prices and bringing the country's real estate sector back onto the track of providing for people's livelihood. The combination of the country's credit and tax policies is expected to prick property bubbles and develop the real estate market into a consumption-dominated one.
       
        The author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences.
       
        (Source: China Daily)