A State Council executive meeting on May 17 adopted a six-point package of regulatory measures aimed at dealing with the overheating real estate sector.

But the content of these regulatory measures was already covered by the State Council Circular on Stabilizing the Housing Price and Premier Wen Jiabao's "eight suggestions on regulating the real estate sector" last year.

Essentially, the new measures have been introduced to ensure the effective implementation of the policies drawn up last year. For example, the new policy stresses the continuous optimization of the housing mix, while it will also strengthen the regulatory roles of taxation, credits and the land-use policy. In addition, it will help increase the availability of affordable housing for low-income earners, and improve the supervision of the housing market and the transparency of the real estate sector.

But the new measures are more specific in terms of the real problems facing the real estate sector. In comparison with the measures and policies mapped out last year, they are also much more detailed. For example, in terms of regulatory leverage, the new policy emphasizes overall and comprehensive means. This contrasts with the narrower approach prompted by last year's regulatory measures, which focused solely on land-use and monetary levers. On the one hand, the new policy suggests the application of indirect means such as taxation, credit extension and others to ensure a balance exists between supply and demand in the real estate market. Taxation leverage, for example, needs to be used to counter housing speculation. But on the other hand, the new policy also stresses the government's direct involvement in the regulation of the housing market, with the use of administrative measures.

The State Council conference called on various levels of government, especially city administrations, to include controlling rocketing house prices and optimizing the mix of housing supply on their agendas.

In more specific terms, the new policy has the following features.

First, more varied and comprehensive means are applied.

For example, with regard to optimizing the mix of housing supply, the six-point policy requires the setting of specific ratios between higher-end and low-price economic housing, in addition to requiring an overall improvement in the mix of housing supply.

Moreover, it explicitly forbids "land hoarding," a step forward from last year's rather vague banning of "land speculation." This indicates that making the best use of land and increasing housing supply have become the important means to control real estate prices.

And it's the first time that a package of measures has been introduced to strengthen supervision at every stage of the property development process. For example, the newly formulated policy strictly prohibits randomly altering the content of construction projects, unsound transactions, hoarding finished housing and driving up prices.

All this means that some compulsory targets will be set from the very start of a property development project. These will deal with issues including land-use planning, and the requisitioning and transfer of land. This is aimed at preventing random changes being made to the purpose of land use, getting to the very root cause of the problem.

In addition, banks' point of departure has shifted from last year's guarding against monetary risks to this year's clear-cut keeping down the housing price, as is set out by the new policy.

Second, differentiation is stressed by the regulatory measures.

The six-point policy covers the supply, demand and transaction of housing and emphasizes that the credit-extension policy should be fine-tuned to suit local conditions. This differentiation demonstrates that the central government realizes that real estate sector is at different stages of development in different areas. This signifies a change from the time when "medicine" was prescribed to the entire nation whereas only one locality "caught a cold."

Meanwhile, a range of credit-extension policies will be adopted to suit the interests of different types of buyers. For example, first-time buyers of apartments will receive preferential treatment with regard to getting bank loans and making down payments. In contrast, higher taxes will be levied on those who purchase property solely for investment purposes.

Third, the targets set by the measures are more clearly defined.

Compared with previous regulatory measures, the new ones are not only targeted at developers, buyers, the transaction process and what is being transacted, but also stress the government's role in management, offering guidance and exercising supervision.?
By holding government officials administratively responsible for the real estate sector, the new policy separates the government's responsibilities from the market. In this way, the different roles of the government and the market are clearly defined, which will help resolve the old problem of local governments' economic interests conflicting with central government regulations.

The newly formulated policy tries to get to the bottom of the problems besetting the real estate sector, such as land supply, housing security, management of taxation and the regulation of credit extension.

The new policy also promotes the resolution of problems through reasonable consumption modes and a number of channels. These include the sale of second-hand houses, the leasing market and the use of government housing subsidies for low-income earners.

In addition, low-rent housing enjoys a higher priority than low-cost apartments. In the past, the situation was the exact opposite.

We have reason to believe that the six-point regulatory measures provide an overall policy framework for the healthy development of the real estate industry in the future. The formulation of the new policy also clearly shows the central government's attitude emphasizing the importance of market mechanisms and government intervention, balancing supply and demand, and the integration of long-term targets and short-term ones.

But these new measures need to be fleshed out with more detailed and more specific rules and regulations so that the principles can be carried out to the letter.

The author is a senior economist from the Economic Forecasting Department of the State Information Center.

(China Daily May 24, 2006)