A well-targeted property tax can become the government's best weapon in the battle to curb rising housing prices

A fresh rise in domestic housing prices is testing the tolerance of the government and public, and highlights the need to expedite a new round of fiercer regulations to rein in the intractable housing market.

According to the data from the China Index Academy, the average price of new homes in China's 100 major cities rose to 9,812 yuan ($1,577) per square meter in January, an increase of 1 percent from December and the eighth consecutive increase month-on-month. It is also 1.2 percent higher than a year earlier.

The price rises in some first-tier and coastal cities are well above this, with the average price of new homes hitting 25,075 yuan per sq m in Beijing in January, a growth of 2.27 percent month-on-month and up 5.93 percent from a year earlier. Shanghai's average price was 27,655 yuan per sq m, up 2.3 percent from December and up 1.72 percent from a year ago.

Statistics published by the National Bureau of Statistics on Jan 18 show that 54 of China's 70 major cities recorded a higher home price rise in December, and new home prices rose year-on-year in 40 of them, up from 25 in November.

It is disheartening that the price rises have come in defiance of the latest round of the "harshest-ever" real estate regulations and the authorities' repeated reaffirmation that they will continue to be applied. The regained momentum has once again cast doubts over the efficacy of the regulations.

In a bid to tame the restive housing market that has run amok following the 4-trillion-yuan investment rampage at the height of the global financial crisis, the Chinese government has embraced an array of measures over the past three years, ranging from raising the minimum down payment and adopting higher interest rates for second-home mortgages to putting a conditional ban on the buying of properties by non-local residents. A property tax was also launched in Shanghai and Chongqing on a trial basis. These moves cooled the red-hot housing market and ignited hopes that China's speculation-riddled housing market would be pulled onto a trajectory of healthy and reasonable development.

Regrettably, the adoption of pro-growth macroeconomic policies in the context of the national economic deceleration last year, including two cuts in benchmark interest rates and banks' reserve requirement ratio, moves that sent the market an unequivocal message of monetary easing, has given the struggling housing market a chance for respite and the opportunity to rebound.

The vows made by China's new leaders to promote urbanization have further boosted the impulse of developers to acquire bigger profits through raising housing prices, but they are defying the government's explicit stance that the country will pursue a higher quality of urbanization. With people expecting housing prices to continue rising, the phenomenon of panic home-buying has again emerged in some big cities, although relevant State departments have time and again tried to ease people's concerns over supply insufficiencies and vowed to maintain tightened housing regulations.

Recent media reports about the yuan's over-issuance (China's M2 supply is approaching 100 trillion yuan, which is 180 percent of its gross domestic product), has also aggravated people's concerns about inflation in the future, driving some potential homebuyers into the market ahead of time as a way of fending off inflation and preserving the value of personal assets. Investors and speculators will not easily let slip any chance of profiteering.

Public expectations of further price rises, together with tighter housing supply, as the result of a decline in housing inventory and the area of new homes constructed, will pose a big challenge to the government if no targeted regulatory measures are taken.

Statistics show that the area of new homes built in Beijing was down 24.1 percent year-on-year in 2012 and down 26.9 percent year-on-year in Shanghai. Recent media reports of the multiple properties possessed by some local officials across the country have disclosed a broad picture of the unfair distribution of the country's limited housing resources and aggravated public anger at the inability of the government to make the market accessible to more people.

The latest round of housing price rises has come despite the government's unrelenting efforts to curb them, and, if unchecked, the rising prices will seriously erode its authority and credibility. It is also against ongoing government efforts to extricate the national economy from real estate-dominant investment and its reiterated commitment to pursue a higher quality of urbanization and improve people's livelihoods.

The public has been pinning high expectations on the new government, due to take office in March, for more effective actions to curb housing price rises. Achieving this goal will help it gain more public trust.

In the stockpile of government policies, property tax remains one of the very few forcible weapons that can be wielded. A well-targeted property tax will effectively squeeze investment and speculation out of the market and return the market to a rational development. Facing a housing market that is once again in danger of spiraling out of control, there are reasons for people to anticipate that a property tax is on the way.

The author is a senior writer with China Daily. E-mail: wuyixue@chinadaily.com.cn

(China Daily 02/06/2013 page8)