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Rising land prices

(China Daily)
Updated: 2010-12-21 08:05

China's land regulators are trying to help cool the property market by reining in the high prices of land sales.

However, as the rising tide of inflation is lifting all boats, administrative measures against the excessive growth in land prices in some Chinese cities will hardly work as expected.

If authorities are to effectively check both consumer inflation and property bubbles, the single most important task is to hike interest rates swiftly and substantially.

Late on Sunday, the Ministry of Land and Resources issued a statement urging local land authorities to take concrete measures against the excessive growth in land prices in some Chinese cities and crack down on illegal behavior such as land hoarding.

This looks like a natural policy response to the recent rise in house prices in Chinese cities.

But in spite of all the harsh talk and the raft of measures the government adopted since early this year to crack down on property market speculation and soaring property prices, property prices in 70 major Chinese cities still managed to rise 0.3 percent month-on-month and 7.7 percent year-on-year in November.

Though the year-on-year growth rate has kept falling since it peaked at 12.8 percent in April, the rise in new home prices in absolute terms, as well as the increasing sales, has shown that market demand is more robust than estimated.

The record prices in land sales that some Chinese cities have just witnessed certainly justify close attention from the land regulators. If the rapid growth in land prices cannot be checked, it is simply unrealistic for the government to keep a lid on soaring house prices because bread will always cost more than the flour it is made of.

However, administrative measures to adjust land prices may reduce the supply of land to tilt the property market further against consumers. Worse, these measures will do little to help policymakers deflate a property bubble.

With China's consumer prices having soared to a 28-month high of 5.1 percent in the 12 months through November, policymakers must recognize that inflation expectations are pushing up demand for property as a safe haven for investment.

To prevent a retaliatory price rebound in 2011, land regulators are obligated to ensure that a sufficient and reasonable supply of land will be timely translated into a significant increase in the supply of new houses.

More importantly, policymakers should be ready to turn off the tap of excess liquidity with continuous interest rate hikes.

The hugely disruptive consequences of the housing bubble in some developed countries, which was largely inflated by interest rates that were kept too low for too long, is a lesson that Chinese policymakers should learn.

And the fight against a property bubble will also decide how well the country can manage the rise in overall prices in the coming years.