The State Council Wednesday declared its readiness to use a combination of tax, credit and land policies to ensure the healthy development of the real-estate sector which many economists contend is displaying signs of overheating.

An executive meeting of the State Council chaired by Premier Wen Jiabao pledged to take the necessary measures to steady the property market and curb price rises in major cities.

After earlier macro-economic policies brought "the momentum of high investment growth and house price rises basically under control" the meeting focused on the remaining problems.

The gathering was of the view that "housing prices are still rising too fast in some major cities" and warned that "order is yet to be restored in the property market."

So tax, credit and land supply policies should have a bigger role to play in guiding the market, according to the meeting.

While it's yet to be seen what tax measures will be introduced, the People's Bank of China (PBOC) or central bank, raised its one-year benchmark lending rate by 27 base points to 5.85 percent in April.

Many economists expect the PBOC to take further measures to cool the sizzling economy which grew 10.2 percent in the first quarter.

"A moderately tight monetary policy, as seen from the central bank's rate hike, serves as a timely dampener on the housing market and so would any new tax and land supply policies," said Han Meng, an economist with the Chinese Academy of Social Sciences.

Property prices in 70 large to medium-sized Chinese cities witnessed an average 5.5 percent increase in the first quarter over the same period in 2005, according to the National Bureau of Statistics.

Other measures the State Council has vowed to pursue include a housing supply structure which favors low-income households and an improved information disclosure mechanism. The emphasis on housing development, the meeting pledged, would be on small to medium-sized affordable homes and rental properties. 

At the end of April, 40 major cities reported 1 million properties on the market with a floor area of 120 million square meters. However of those only 12,000 were smaller than 60 square meters, according to the Ministry of Construction.

The development of the real-estate sector and housing construction, the State Council circular said, "should take into full consideration the country's basic conditions, such as its large population and small land mass on a per capita basis."

Demolition of old urban housing should be properly paced to reduce the demand for housing, the meeting added, stressing the importance of a healthy housing sector as "a pillar industry" of the economy.

"The policies that the government has promised to introduce have long been debated," said Yi Xianrong, a research fellow at the Chinese Academy of Social Sciences and a long-time critic of land developers. "This is a strong signal that Beijing will not let the housing market go astray."

(China Daily May 18, 2006)