China bank adviser says property woes worse than US
01 June 2010
China’s housing market problems are worse than those in the United States before the global downturn as they could stoke public discontent, a central bank adviser has warned.
The comments were made before China’s State Council, or cabinet, announced it would “gradually reform the real estate tax” — the first official sign of a possible annual levy on residential housing aimed at reining in soaring prices.
“The housing market problem in China is actually much, much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis,” said Li Daokui, a member of the bank’s monetary policy committee.
“It is more than (just) a bubble problem,” he told the Financial Times in an interview published Tuesday.
The property market in the United States collapsed as too many people were unable to repay their high-risk, or sub-prime mortgages, leading to a credit crunch in which thousands lost their homes and lending dried up.
China has recently introduced a range of measures to prevent the growth of asset bubbles and soaring property prices.
The latest tax plan was expected to discourage property speculation and help replenish the coffers of local governments, which have been severely depleted by an investment binge over the past year, Chinese media reports have said.
Li said recent government measures to rein in the property market needed to be part of a long-term push to bring high housing prices under control, the Financial Times reported.
He warned the high cost of housing could hamper future growth by slowing urbanisation. Rising prices were also a potential political flashpoint, especially among younger people who felt locked out of having their own home.
“When prices go up, many people, especially young people, become very anxious,” he said. “It is a social problem.”
He added that there were still signs that the economy was overheating and recommended modest increases in deposit interest rates and the value of the Chinese currency, the report said.
Authorities have tightened restrictions on advance sales of new property developments, introduced new curbs on loans for third home purchases, and raised minimum down payments for second homes.
Official data showed real estate prices in 70 cities jumped 12.8 percent in April, the fastest year-on-year rise for a single month in five years.