GROWING DEMAND: Visitors gather information about housing projects at the 2009 winter real estate exhibition in Beijing. The Chinese real estate market has experienced robust growth despite the financial crisis (XINHUA)

On December 9, 2009, the government resumed its five-year sales tax exemption, replacing the previous two-year exemption. It also decided to cancel the 30-percent discount on interest rates for housing loans. Both policies were launched a year before to cope with the financial crisis' impact on the real estate market.

An executive meeting of the State Council on December 14 proposed four additional measures: increase supplies of common houses; continue to support house consumption for self-use and curb speculative house purchases; strengthen risk controls for real estate credit; and continue the massive construction of affordable houses.

The government also hopes to solve the housing problems of 15.4 million low-income families by the end of 2012.

Five Central Government departments, including the Ministry of Finance, the People's Bank of China and the Ministry of Land and Resources (MLR), announced a new policy on December 17 that sets the down payment requirement for land purchases at 50 percent of the total price. In addition, property developers must make a full payment for land purchased from the government within one year of the sale agreement. Developers who fail to meet this requirement will not be permitted to purchase additional properties.

Previously, no uniform provisions existed related to the proportion of down payments in the installment sale of land among different cities. Proportions were traditionally fixed by governments at different levels, and developers. They often ranged from 20-30 percent, much lower than the requirement set by the authorities.

At a December 23 press conference, the MLR explained the situation involving idle land in the real estate industry. At present, there is about 10,000 hectares of idle land awaiting real estate development. According to MLR policies, if a piece of land is idle for more than one year but less than two years, the government will levy an idle fee of 20 percent of the land price. If a piece of land is idle for more than two years, the government will revoke the land permit without compensation.

Analysts agree the Chinese Government has shown concern over the real estate market through its recent actions, fearing the market may negatively influence the steady economic development the government has strived to maintain. Further regulatory policies may be issued in the future, the analysts said, since the government recognizes the financial crises in the United States in 2008 and in Dubai in 2009 were both triggered by unhealthy development in their real estate markets.

Hidden financial risks

The recent wave of regulatory policies is not completely new, but consists of follow-up measures to policies implemented more than a year ago.

From 2003 to the first half of 2008, housing prices in China increased steadily. To prevent housing prices from spiraling out of control, the Chinese Government adopted various measures to curb the rapid house price hikes. In 2007 alone, the central bank increased interest rates six times and raised the deposit reserve rate 10 times.

The policies were suspended in the second half of 2008 due to the financial crisis, which forced the government to launch a massive stimulus package worth 4 trillion yuan ($586 billion) that included support for the real estate industry.

The financial sector has also played an extensive role in providing support to the real estate industry. According to figures released by the National Bureau of Statistics, in the first 11 months of 2009, among all funds obtained by Chinese real estate developers, nearly 900 billion yuan ($132 billion) were domestic loans and more than 700 billion yuan ($102 billion) were individual mortgage loans. About 1.6 trillion yuan ($234 billion) of credit funds flowed to the real estate sector, 60 percent higher than the same period in 2008. On the other hand, among the 9 trillion yuan ($1.32 trillion) of newly increased bank loans in 2009, about one sixth went to the real estate development sector.

Financial support allowed 2009 to be an exceptionally prosperous year as the real estate market experienced a high growth rate even in the midst of the global economic downturn.

The transaction volume of second-hand houses surpassed the previous three years' total.

House prices also soared in cities across the country, particularly those in first-tier cities, like Beijing and Shanghai, accompanied by record-high land prices and booming real estate investment.

But speculative fears are abundant, with indicators warning of dangerous bubbles in the real estate industry.

While local governments were initially supportive of the rising real estate market, which brought with it the potential for high fiscal revenues, the rapid increase in 2009 quickly put local officials on high alert. Many mayors have gone so far as to display their concerns publicly.

Some of the effects of the current bubble problem originated from excessive bank funds that entered the property sector. After acquiring bank loans, some real estate developers used the funds to purchase more land instead of funding construction projects, a move that has only pushed land prices up, intensified housing price pressures and enlarged the risk of bad debts.