The housing market problems in China are worse than those in the United States prior to the global recession as they could stir up public discontent, according to a central bank adviser.
The comments were made before the State Council in China, or the cabinet, said that it would “gradually reform the real estate tax” – the first sign of a possible annual levy for residential housing aimed at reining in escalating 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, the bank’s monetary policy committee member. “It is more than (just) a bubble problem.”
The US real estate market collapsed as thousands of people were unable to pay their sub-prime mortgages, leading to a credit crunch, in which lending dried up and many lost their homes. The Chinese government recently introduced measures to prevent the increasing real estate prices and growth of asset bubbles.
According to reports, the latest tax plan is expected to discourage real estate speculation and help replenish the coffers of the local governments – which have been severely depleted over the past year by an investment binge.
Mr. Li explained that the recent measures to rein in the real estate market needed to be part of a long-term push to control escalating housing prices.
He cautioned that the high cost of housing could prevent future growth by slowing down urbanization. Escalating prices were a potential political flashpoint, most especially among young people who have a feeling of being locked out of owning a home.
“When prices go up, many people, especially young people, become very anxious,” he said. “It is a social problem.”
Mr. Li added that there are still signs that the Chinese economy is overheating and recommended increases in deposit interest rates and the value of the currency, according to reports.
Chinese authorities have already tightened their restrictions on advance sales of new real estate developments, raised minimum downpayments for second homes and introduced new curbs on loans for third home purchases.
Official data indicated that property prices in 70 cities increased 12.8 percent in April, the fastest year-on-year increase for a single month in five years.