The mainland's leaders are resorting to increasingly desperate measures to slow the overheating property market, announcing a slew of new rules to implement policies unveiled by Premier Wen Jiabao less than two weeks ago.
While they should be commended for their concern, they must take a less interventionist approach and do more to correct the key flaws in the system: the lack of affordable low- and mid-range housing and curbing the greed of local government officials.
There is, after all, little else they can do because market forces will ultimately dictate property values. This has been the experience of governments the world over and although the mainland has its own particular problems, its present property bubble will prove to be the same.
That was evident in the wake of the measures announced by Mr Wen on May 17: property prices in Shanghai rose 11 per cent in a week.
Although the latest moves by the State Council strengthen and add detail to these policy directives, there is nothing to suggest that a property sector central to mainland investment will act any differently. With bank interest rates so low and the financial system so underdeveloped, property is one of the few investment vehicles. But as prices rise, so do the discontented voices as the dreams of many in cities like Beijing, Shanghai, Guangzhou and Shenzhen slip out of reach. Since 2000, urban house prices have doubled, yet the average income in cities and towns has increased by just 67 per cent. A recent Beijing Normal University report showed that 70 per cent of residents in eastern cities where the prices are highest could not afford to buy new homes.
Officials are understandably worried that a property bubble left to expand without attention could explode in social unrest. They already have the 87,000 protests recorded last year, many involving the privatisation of land in rural areas, as proof that property is a volatile issue.
There are problems, though, the most apparent being that while property developers are eager to build apartments, their attention is firmly on the luxury end of the market, where profits can be maximised. The result has been a massive shortfall in cheaper, low- to middle-cost housing.
Local officials are encouraging such developments. It is in their interests - sales of land to developers and property-related taxes and fees are the biggest single source of revenue for local governments which also own many development companies. They have few incentives to provide low-cost housing.
The State Council's latest measures, announced yesterday, aim to prevent such practices through tighter lending standards and higher minimum downpayments. They also stipulate that at least 70 per cent of new flats will have to be of no more than 90 square metres in size. And a week ago, banks were told to favour families buying their first homes and to scale back on lending to people investing in luxury accommodation.
The mainland has made remarkable progress in the property sector, moving it from being wholly state-owned to permitting widespread private ownership in a decade. That revolution must continue.
The government cannot afford to stand by and do nothing about prices which speculators are steadily moving beyond the reach of the growing middle class. But the steps taken yesterday are likely to prove ineffectual in making private housing more widely available.
Enforcement will be difficult in a culture where rules in most sectors are routinely ignored or worked around. Rather, a balance between supply and demand has to be struck and this will be best achieved by making land available to people unable to afford a place to call their own. A rapid expansion of land supply for building is needed if the mainland wants to put the brakes on rising prices.
Only then will the threat of the speculative property bubble hanging over the mainland's cities truly be lessened.