China property market risks chaos if controls eased: Wen

BEIJING Wed Mar 14, 2012 1:42am EDT

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BEIJING (Reuters) - China's home prices are still far from falling to a reasonable level, and efforts to curb real estate speculation must be maintained or risk chaos and a property bubble which would harm the economy if it burst, Premier Wen Jiabao said on Wednesday.

"Housing prices are still far from a reasonable level. Therefore, we can't relax property control measures," Wen told a news conference on the last day of the 2012 National People's Congress meeting.

"If we relaxed, all we have achieved would lost and it would cause chaos in the property market, which is bad for the long-term, healthy and stable development of the housing market," Wen said, adding that reasonable housing prices should reflect personal income, investment and reasonable profits.

Wen's opening address last week to the largely rubber-stamp annual meeting of parliament, the National People's Congress (NPC), made it clear that the leadership will push ahead with property tax reform.

But a chorus of carefully nuanced complaints from officials in relatively rich coastal provinces is likely to have delayed a substantial widening this year of a test of a new property tax scheme beyond Shanghai and Chongqing.

The government's plan for a nationwide property tax is designed to consolidate existing levies and replace a slew of restrictions on multiple and speculative home purchases that had seen property prices surge 10-fold in a decade, until a two-year tightening campaign began to bite in the autumn.

Wen stressed that the underlying fundamentals of the real estate market remained strong, with demand for property solid and sustainable thanks to rapid industrialization and urbanization of China's 1.3 billion-strong population -- more than 50 percent of which now live in towns and cities.

RENTING ENCOURAGED

But Wen said that home ownership should not be the goal of everybody in the country.

"Of course, when we say people should have a place to live, it does not mean that everyone should own a property. In terms of direction, we should encourage more people to rent," Wen said.

Getting property right is crucial for China nationally as real estate investment makes up about 13 percent of economic output and the country's vast factory sector is battling with a downturn in external demand from debt-ridden Europe and under-spending U.S. consumers -- China's two biggest export markets.

Home prices fell in January from December, marking the fourth monthly fall in a row and showing that the policy-driven property market downturn is deepening.

Economists polled recently by Reuters see prices falling 10-20 percent this year.

Meanwhile, local governments must find a way to repay the 10.7 billion yuan ($1.7 trillion) in debt they have racked up. In 2011, their land sale revenue dropped 13 percent from the previous year to 1.86 trillion yuan, three domestic property consultancies estimated, and further falls are expected.

The predicament is leading local officials to try to flout property tightening measures and forcing Beijing to hit back hard whenever it sees something running counter to its core campaign to drive down runaway home prices.

(Reporting by Zhou Xin and Nick Edwards; Editing by Kim Coghill)

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