"The banking industry faces huge systematic risks. If loans are not repaid on time, bad debts will increase, which will trigger turmoil in the banking industry," said Yin Zhongli, a researcher at the Institute of Finance and Banking at the Chinese Academy of Social Sciences.

Different opinions

As long as the Central Government's policies are well implemented, lowering housing prices and curbing speculation are easily realized, said Li Shaoming, a researcher at China Jianyin Investment Securities Co. Ltd.

The government's measures will play a lever-action role, compressing speculative housing purchases and effectively controlling the excessive growth in demand. The result will be a curb in rapidly increasing housing prices, Li said.

But some real estate developers disagree. Ren Zhiqiang, President of Huayuan Group, said on his blog that house prices would rise again during the current round of regulation.

Rising land prices will push up house prices, Ren said. Policies related to land acquisition and sales have failed in the past due to the struggle between the Central Government and local governments for jurisdiction. Record-high land prices seem to indicate that the Central Government is unable to effectively control local governments.

In a September 2009 analysis, Ren said the real estate industry invested 390 billion yuan ($57 billion), but in October, the amount slid down to 340 billion yuan ($50 billion). An even steeper decrease followed in November, cutting investments to 280 billion yuan ($41 billion). The decline, Ren said, indicates confidence inadequacies in the market and a slow increase in supplies. If the current round of regulation causes investors' confidence to waver any further, the conflict between supply and demand in the real estate market will become more serious.

Land transaction rules are exclusively formulated by the government. Since the costs of land are recovered by developers by charging higher prices for houses, the government is inadvertently levying taxes on consumers. Increasing land costs will only add to the burdens of consumers, which won't help to curb the house price hikes, but may actually push up house prices, Ren said.

The current demand for real estate also presents little incentive for developers to reduce prices since houses can easily be sold, allowing investments to be recouped in a shorter amount of time, said Gu Yunchang, Vice President of the China Real Estate and Housing Research Association.

Gu worries that after the tax discount for house purchases is cancelled, the increased tax payments will fall on consumers, which will indirectly push up housing prices. Moreover, to catch up with the "last train" on tax discounts, some consumers may purchase houses in a panic, which may cause market transactions to increase markedly and further push up housing prices.

Chinese Real Estate Market Figures (Jan.-Nov. 2009)

1. Real estate development

Real estate investment totaled 3.13 trillion yuan ($458 billion), up 17.8 percent year on year.

Real estate developers purchased 270.91 million square meters of land, a decline of 15.4 percent from 2008; 203.38 million square meters of land was developed, decreasing 2.5 percent year on year.

2. Commercial house sales

Commercial house sales, with dimensions of 752.03 square meters, surged 53 percent compared with the same period in 2008.

The value of commercial houses sold stood at 3.6 trillion yuan ($527 billion), soaring 86.8 percent year on year.

In November, house prices in 70 large and medium-sized cities went up 5.7 percent year on year, which was 1.8 percentage points higher than the rate in October.

3. Real estate developers' funding sources

Real estate developers received funds worth 4.82 trillion yuan ($706 billion), a year-on-year increase of 44.2 percent. Of the total, domestic loans reached 899.4 billion yuan ($132 billion), foreign funds 41.3 billion yuan ($6 billion), self-collected funds 1.59 trillion yuan ($233 billion) and capital from other sources 2.29 trillion yuan ($335 billion).

(Source: National Bureau of Statistics)