Well-run rental market best way to deflate real estate bubbles

Updated 2017-10-10 11:02:53 China Daily

The large cities such as Beijing and Shanghai have managed to cool their previously overheating real estate markets thanks to rounds of policy interventions since September last year. However, the enthusiasm of prospective homebuyers in some third-and fourth-tier cities seems to have been rekindled. Beijing Youth Daily commented on Monday:

The key to cooling the country's real estate market, which was in danger of overheating, has been targeted policies that vary from city to city rather than a one-size-fits-all nationwide policy. That old approach did help rein in the surging property prices, but it failed to be carried through by some local governments that were reliant on the revenue from land sales.

Under the new approach, local governments only have themselves to blame should they fail to stabilize their real estate markets. Hence they are more motivated to employ policy tools when their real estate bubbles look in danger of becoming too big; which is why a total of 150 real estate policies have been introduced across the country over the past year.

Smaller cities glutted with new houses may find it more tricky to destock, as the demand can vary from one city to another. And there is still a risk that speculative investors are looking for supervisory loopholes and banks may be tempted to loosen their restrictions on loans. Future real estate policy, therefore, should keep a close eye on that possible alliance.

The targeted real estate policies practiced by local governments are necessary, but not enough. The cure for the ever-changing real estate market lies in long-term mechanisms such as the one that encourages both homebuying and renting. Convincing more prospective homebuyers to rent largely hinges on a well-run home rental market, one that grants qualified tenants the same rights enjoyed by homeowners, for example, allowing their children to go to schools in the community.

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