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UPDATED: July 9, 2010 NO. 28 JULY 15, 2010
Effective Cooling Measures?
Questions arise over policies meant to decrease housing prices in China and the overall future of the property market

BUY OR NOT BUY: Potential homebuyers are waiting for price decreases to sweep China's overheated housing market, as more signals point to a major price adjustment late this year (WANG DINGCHANG)

Inevitable price drops

Ren Zhiqiang, Chairman of Huayuan Property Co. Ltd., an outspoken real estate tycoon, has reaped many a benefit from housing price hikes in recent years. Now, he said it's only a matter of time before home prices start to decline.

"Under the government's stern measures, price decreases will become a major feature of the housing market this year," Ren said.

The housing market has become polarized, Ren added. Home prices have fluctuated and inventories increased in first-tier cities where the already high housing prices are rising too fast. But in some second-tier and most third- and fourth-tier cities, where the low prices have left ample room for increases, prices are soaring along with increases in demand, Ren declared.

Steven Chen, Executive Director of the National Real Estate Manager Alliance, predicted housing prices in China would decrease noticeably in the second half of this year.

And a last-minute change of heart by the Central Government toward housing market regulations this year is all but impossible. Specific measures, Chen said, will be implemented and strike a heavy blow to housing prices in the second half of this year.

Land value-added taxes and tougher punishments on land hoarding could help increase land supplies in the second half of this year, Chen said.

Housing supplies will also increase as completed housing projects that were kept off the market by developers waiting for prices to reach more profitable levels are made available to the public.

In addition, the decrease in real demand and stagnant transactions will weigh on inventories, possibly reversing the supply-demand balance and affecting the negative buyer sentiment in the housing market.

Price prediction

While experts agree a dip in prices will occur by this year's end, the question few can answer is: To what extent will the prices stumble?

"It's hard to predict, because the housing prices will decrease at varied degrees in different cities," Xu said.

The trickiest part of the problem, Ren Zhiqiang said, is that none of China's property developers knows how to cut the prices, or what an appropriate decrease would be.

Chen warned against the possibility of home prices rebounding when low interest rates are adopted to mitigate inflation. The central bank has postponed raising interest rates several times, doing nothing concerning rising inflationary expectations, which have fueled investor expectations for asset price hikes and made property developers and speculative investors reluctant to offer lower prices, Chen said.

The fact that inflationary expectations and low interest rates have propelled asset prices has counteracted the effects of certain regulative measures and will help home prices rebound, Chen said.

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