China property woes more severe than US

China's housing market problems are worse than those in the United States before the global downturn as they could stoke public discontent, a central bank adviser has warned.

The comments were made before China's State Council, or cabinet, announced it will "gradually reform the real estate tax" – the first official sign of a possible annual levy on residential housing aimed at reining in soaring prices.

"The housing market problem in China is actually much, much more fundamental, much bigger than the housing market problem in the US and the UK before your financial crisis," said Li Daokui, a member of the bank's monetary policy committee.

"It is more than [just] a bubble problem," he told the Financial Times in an interview published yesterday.

The property market in the US collapsed as too many people were unable to repay their high-risk mortgages, leading to a credit crunch in which thousands lost their homes and lending dried up.

China has recently introduced a range of measures to prevent the growth of asset bubbles and soaring property prices. Authorities have tightened restrictions on advance sales of new property developments, introduced new curbs on loans for third home purchases, and raised minimum downpayments for second homes.

The latest tax plan was expected to discourage property speculation and help replenish the coffers of local governments, which have been severely depleted by an investment binge over the past year, Chinese media reports have said.

A property tax is likely to be imposed on a trial basis in Beijing, Shanghai, the southwestern municipality of Chongqing and the southern city of Shenzhen by end-June, state media said previously.

China has no such levy on residential property but does impose a 1.2 per cent tax on 70-90 per cent of the value of commercial real estate.

The State Council also approved a plan to encourage the withdrawal of state capital in "general competitive sectors", in an apparent effort to reduce the amount of government-backed investment in the red-hot property market.

Li said recent moves by Beijing to rein in the property market needed to be part of a long-term push to bring high housing prices under control, the Financial Times reported. He warned the high cost of housing could hamper future growth by slowing urbanisation. Rising prices were also a potential political flashpoint, especially among younger people who felt locked out of having their own home. "When prices go up, many people, especially young people, become very anxious," he said. "It is a social problem."

He added that there were still signs that the economy was overheating and recommended modest increases in deposit interest rates and the value of the Chinese currency, the report said.

Official data showed real estate prices in 70 cities jumped 12.8 per cent in April, the fastest year-on-year rise for a single month in five years.

At the Beijing Real Estate Expo in April, the average price of a new apartment in the Chinese capital was Y21,164 (Dh11,380) per square metre, double that of last year, state media said. That means a 90 sqm apartment in Beijing would cost Y1.9 million, compared to the average per capita income of Y17,175 in 2009.

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