Why new policy cannot cool down Beijing's housing prices

After seven government departments issued a joint circular this month in an attempt to stabilize housing prices, Shanghai and Hangzhou, the cities which experienced the most dramatic price hikes, have seen prices lowered by more than five percent.

Housing price level in Beijing, however, has remained stable. The per-square-meter sales price in a recent Beijing housing exhibition averaged at 9,512 yuan (1146 US dollars). In 2004, the average housing prices stood at 5,005 yuan per square meter, according to figures from the Beijing Municipality.

Beijing's housing prices are unlikely to be affected greatly by the new policy, said Yang Qing, board secretary of the Beijing Real Estate Development Company.

"Its rising rate may slow down, but the housing price will not drop in the near future," said Yang.

Many new houses are still being sold like hot cakes in Beijing, Yang said.

According to the new policy, private houses sold after being inhabited for less than two years must pay business taxes according to the whole sale price. The circular also demanded that local real estate administrative departments make clear requirements on price level and housing sizes before giving permission for land use, stressing reducing construction costs for affordable housing and restricting developers' profits to three percent.

Yang and other insiders attributed the maintenance of Beijing's housing price hike to the huge demand for real estate products, as well as the supply shortage.

In the first four months this year, only 7.3 million square meters of new houses were provided in the market, 30 percent decrease from the same period last year, said Duan Meiyan, general manager of the Beijing Dadi Real Estate Consulting Company.

Beijing is home to the country's largest number of civil servants, foreign-related agency staff, white-collar workers, college professors, researchers and artists in the country. This has led to the enormous demand for new houses and price hike in the real estate industry, said Professor Dong Fan with Beijing Normal University.

Compared with Shanghai, Beijing's housing prices have been stable for a long time. The city has also had much less of a problem with real estate speculation, said Professor Lin Zengjie with the Remin University of China.

In Shanghai, the average per square meter price in its urban and suburban areas exceeded 10,000 yuan (1,207.7 US dollars) in 2004. Price of some residential apartments increased 20 percent in a few months. In Beijing, the housing price level stood at about 5, 000 yuan per square meter last year.

Lin also attributed the price hike in Beijing to the high profit rate of real estate developers. The average profit rate of Beijing's housing industry exceeds 15 percent, but in foreign countries, this rate is restricted to 5 percent, Lin said.

Despite macro-control policies by the central government, those business persons engaged in China's housing industry still belong to the richest group in the country.

Ninety-four of the 500 richest people in China are in the real estate business, according to a latest list released by the Guangdong-based "New Fortune" magazine.

Although China has taken a new policy to stabilize housing prices, the country's housing prices are still expected to grow 5 to 8 percent this year, and Beijing's growth rate may exceed 8 percent, Professor Dong said.

Source: Xinhua