Government departments in the country's financial hub are stepping up moves to streamline its rocketing property market by developing an online platform to make the trading process more transparent and manageable.

The upgrade of the platform, the city's only official online website, will inform people about exactly what stage a certain project is at.

This is the latest government measure to streamline the city's red-hot but once highly speculative housing market, and to crack down on irregularities. Tough measures have already been taken by seven ministries to curb rising property prices in leading Chinese cities since June.

All the buying and selling information and the development stages of a property sale will be available to potential buyers, dealers, regulators and property developers following the full upgrade of the website on Monday, according to government regulators.

"The efforts we are making are to make the housing transaction process more transparent and fair to everybody concerned," said a senior official with the property service website, the city's sole official website responsible for monitoring the city's property trading.

Information about the city's new apartment supply and prices as well as the availability of old apartments will all be available on the website.

Local residents will be able to search for homes meeting specific requirements such as location, size and price.

Qualifications and credit records of property agents and developers can also be found on the website, as a way to fend off speculative trading.

"The new measures will make the trading information more solid and thus will create a more regulated climate for property trading," said Song Lei, manager of Corporate Communication of the Shanghai-based Midland Property Agency. "But the measure itself will not solve everything,"

The Shanghai government's efforts to increase the supply of low and middle-priced housing in the city have also begun to pay off, with the floor space of such housing reaching 744,500 square metres in June and accounting for 42.8 per cent of all supply in the month.

The government announced in March that it would start building 20 million square metres of new housing priced below 4,000 yuan (US$480) per square metre, compared with the current average price of 8,013 yuan (US$968) for commercial residential projects.

Statistics from the local branch of the central bank also said commercial banks have become more cautious about potential losses in the sector, facing rising policy and market risks.

"Measures taken by the government are clear and firm, and they have made many speculators begin to pull out of the market," said a senior consultant with the Zhongyuan Housing Brokerage.

Information released by the local monetary regulators also indicated that the growth of mortgages slowed down in the first half of the year.

According to the Shanghai Branch of the China Banking Regulatory Commission, outstanding loans increased by 16.04 per cent in the first six months to 444.5 billion yuan (US$53.5 billion), with a growth rate slower by 3.49 per cent than that of the same period last year.

But the growth rate of commercial housing loans to individual buyers dropped by 7.2 per cent, to 276.1 billion yuan (US$33.3 billion).

Curbing runaway house prices

The property market has been red hot recently. Soaring house prices have led to public complaints and subsequent government measures aimed at reining in growth.

The State Council and relevant central departments have issued a series of documents to dampen house prices since March. This marks a change in the country's policy of stimulating property demand in the wake of the 1997 Asian financial crisis. The nationwide property market will enter a stage of adjustment, which may last for three to five years.

The real estate adjustment cycle began in the first quarter of this year, with eastern regions undergoing the most dramatic investment downturn. Official property indices have also shown the sector has entered a stage of medium-term adjustment.

In Shanghai and Hangzhou of Zhejiang Province, where property investment and purchase growth rate used to be highest in the country, demand has started to slide.

The new government real estate policies, which hike mortgage interest rates and raise taxes, have dampened investors' enthusiasm and changed consumer expectations about returns on housing speculation. This is contributing to reasonable development of the sector.

The policies will also help resolve some misunderstandings of and conceptual deviations from the true conditions of the property market.

As the domestic property market booms, the public has become familiar with a number of deceptive interpretations of the industry conjured up by developers' advertising campaigns.

The public should be on the lookout for fallacious claims that house prices will not fall because of the huge population and dwindling land acreage. Developers argue continually rising house prices are the result of rising demand meeting inadequate supply.

Investigations demonstrate land and housing supplies, even in economic hubs such as Beijing, Shanghai, Guangdong and Zhejiang provinces, are sufficient for market demand in the coming years.

A healthy development of the sector requires clarification of these misleading claims.

The first such argument is that real estate is the largest and most important pillar industry of the national and local economies.

As important as it is, the role of property should be emphasized through encouraging consumption by the majority, not just through excessive investment and high prices that are only affordable to high income earners.

The second false argument is that the public will receive handsome returns on real estate investments.

The more individuals are involved in investment-oriented transactions, the more bubbles and risks there are. Real estate is not a high-tech industry, but can allow developers a profit margin of at least 30 per cent, meaning there is potential for bubbles.

If investors purchase a second house, prices will be pushed up. But when those speculators want to cash in on the high prices, given the converged sale of houses, prices will slump, not soar.

In other words, rising prices are merely virtual, and not real.

Some developers claim they should only be responsible for building houses for those who can afford the current price levels, and that the well-being of low-income earners should be ensured by the government.

In a market economy, however, the market should satisfy the demands of consumers, not a specific, small group of people. If a competitive industry is unable to satisfy the demands of most consumers, it will not be successful.

If the housing problem can only be solved by the government, then does that mean we should return to the old planned economy regime under which everyone is assigned a house?

Property developers also claim that since most demand is from those who buy houses for their own use, not for speculation, there should not be significant bubbles in the sector.

Admittedly, most house owners are not playing the speculation game, but speculative forces can cause great fluctuations in prices, and therefore create dangerous bubbles. Such bubbles, despite the relatively small number of speculative house buyers, must be closely watched.

Struggling to find reasons for the high prices, developers often argue fast-paced urbanization is to blame.

In Shanghai and Beijing, where house prices grow the fastest, the growth rate in the number of new residents from outside the cities last year was only 1.81 and 2.54 per cent respectively. Such a low growth rate does not explain rocketing house prices in those cities.

Real estate developers also argue a high house price to annual household income ratio does not reflect the presence of bubbles, but rather the scarcity of land.

The ratio actually is a widely accepted index in the rest of the world, used to gauge whether prices are reasonable or not. It is about 10 on average in China, and in Western economies ranges from 3 to 5.

The high level reflects bubbles in the sector, and also suggests houses are not affordable.

China's major cities do not lack land for development. It is just that the unreasonably high prices have driven up the ratio of house price to household income.

The most commonly cited justification for high house prices given by property developers is that house prices must not decline as if so, the national economy would be in jeopardy.

Although the bursting of bubbles would have some impact on the economy, it is better for the bubbles to burst earlier to avoid greater losses in the future.

To improve the situation, policy-makers should bear in mind that holding back the excessive growth in house prices is just like stemming high rates of inflation.

The government should encourage the development of a real estate sector that caters to the needs of the majority of consumers. It should not encourage speculative investment by the masses, which would be disastrous.

The home sales system should be reformed. Only once houses are completed should they be sold. This may dampen speculation and help control prices.

(China Daily July 14, 2005)