China’s housing market problems are worse than those in the US 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 would “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 UK before your financial crisis,” a member of the bank’s monetary policy committee, Li Daokui (李稻葵), said.
“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 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 the end of this month, state media said previously.
China currently has no such levy on residential property but does impose a 1.2 percent tax on 70 percent to 90 percent 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 urbanization. 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.”
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