China's real estate controls are paying off. It should be noted that it is not the right time to end the property cooling measures now that housing prices are finally starting to fall.

Prices still too high

The purpose of the cooling measures is to "bring home prices down to a reasonable level," but the country's housing prices remain obstinately high, with major indicators such as the home price-to-income ratio and price-to-rent ratio still beyond a reasonable level.

Housing prices are still likely to rebound due to certain factors. Only by constantly improving and effectively implementing property cooling measures will the Chinese government achieve its goal of bringing home prices down to a reasonable level.

Furthermore, China has just started establishing a sound housing supply system as well as reforms concerning land sales, taxation, and related laws and regulations. If the country now loosens property controls after initial success, its real estate sector will return to the old path, housing prices will inevitably rebound, and all its past efforts to regulate the real estate market will be in vain.

At this critical juncture of regulation, Premier Wen Jiabao and Vice Premier Li Keqiang recently re-emphasized that the real estate market regulation should be executed resolutely without any hesitation. This has relieved people's nerves.

Facing the slowdown of domestic economy and the increased uncertainty in international economy, what is supporting China's decision of persistent regulation?

Effect on financial sector minimal

Ren Xingzhou, head of Institute of Market Economy Research under the State Council, believes that the current investments in real estate will continue to maintain reasonable growth, and it would be normal even if the growth slows down. The adherence to real estate market regulation helps to further improve people's livelihood, promote social harmony and stability and drive the healthy development of the real estate sector.

Meanwhile, the influence of a steady housing price drop on the financial sector, including banks, is generally controllable. From a mid- and long-term perspective, sticking to regulation can help the local economy gradually shake off over-dependence on real estate, and promote the adjustment of industrial structure and income structure.

Therefore, following the periodic development law of China's real estate market and persisting in real estate market regulation is actually conducive to sustained and healthy economic and social development.

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