Home ownership must be more than a dream
The deep-rooted Chinese cultural desire to own the roof over one's head, combined with rising property prices and interest rates, is leading to a crisis in mainland cities. While the wealthy can fulfil the dream, the rest of society is increasingly falling into a financial bind that the government has promised to tackle, but has yet to adequately respond to.
Much of the problem lies in the lack of a uniform policy on housing. With the property and associated mortgage markets immature in their development, there is the danger that a crucial sector of society could be financially ruined by the system. Premier Wen Jiabao's work report at the recently concluded National People's Congress mentioned the soaring property prices, and city administrations have since reiterated pledges to cool economic growth. Such rhetoric in the past has not been followed by concerted action and fears persist that the housing bubble will burst and lead to economic disarray.
Warnings yesterday from a leading economist at the Chinese Academy of Social Sciences that those from the middle and lower income groups may be forced to default on mortgage payments because of the financial pressures they face are a cause for concern. The subsidised housing system for the poor is no longer functioning in the way it was intended, and with property developers focused on profits by building luxury housing that is beyond the reach of the majority, government intervention is necessary.
Housing prices across the nation rose by an average of 5.5 per cent last year, and in Beijing and Shanghai by at least two or three times more. Salaries barely rose 5 per cent, though, and with the one-year benchmark lending rate raised .27 per cent this week to 6.39 per cent, there is great pressure on those who have taken out mortgages - more than 90 per cent of whom are estimated to have loans with variable rates.
The mainland has a market-driven real estate system and a bank-loan-dominated housing finance one. Officials, such as Central Bank deputy governor Wu Xiaoling , have maintained that the model is suitable, although acknowledging that it needs to be closely watched.
Clearly, mere watching is insufficient - nor is capping economic growth going to resolve the problem.
While returning to the socialist model of the past, where the government provided housing, is impractical in a market-driven system, authorities can still put in place policies to ensure even the poor can have a roof over their heads. Cheap land can be allocated to developers to build affordable housing and a predetermined percentage of developments can be set aside for cheaper apartments. With property ownership now enshrined in law, the mainland has to do its utmost to ensure that the dreams of its people to own their own homes can be attained.