Experts said on Oct 3 that promotion of low-income housing by local governments is key to curbing China's rising home prices.

China's low-income housing system mainly includes affordable housing, price-limited housing, low-cost rental housing and public rental housing aimed at different low-income groups.

Low-income housing, different from commodity housing, should not be regulated by the government's measures enacted recently to crack down on the property market, said Wang Xiaoguang, a researcher with the Chinese Academy of Governance.

Since the reform of the housing system in 1998, Chinese families have obtained housing mainly by two means, commercial residential buildings for the middle- and high-income families, and affordable housing for low-income families.

However, skyrocketing housing prices and a shortage of low-income housing blocked Chinese residents' housing dreams, said Wang Li, a United Nation's chief economist stationed in China, who was previously an economist with the China Academy of Social Sciences (CASS).

In a move to cool rising housing prices, China suspended bank loans for third home purchases beginning Oct 1 and plans to extend property taxes throughout the country. Further, all first-home buyers will now have to pay a down payment of at least 30 percent of the purchase price, according to the new rules.

These rules also reaffirmed support for construction of affordable housing, including pledges that commercial banks should continue to provide loans for the development of affordable housing and draft policies to support public rental housing construction with mid- and long-term loans.

Property developers, however, will not buy these tax preferences and vie with each other to construct low-income housing, given that the tax savings are tiny compared with massive profits from commercial residential building, said Wang Xiaoguang.

Also, these stimulants should be targeted at local governments who shoulder the responsibility to build low-income housing to meet the basic needs of residents, he said.

The central government should also implement mandatory standards to local governments in formulating and implementing policies and, above all, treat low-income housing differently than commercial housing, according to Wang.

Otherwise, although the central government set a quantitative goal for each provincial government to build low-income housing, local governments might well fall short of reaching these goals because they would rather sell land to commercial developers for large profits, Wang noted.

Additionally, increases in building low-income housing will deter speculation in China's property market and thus be conducive to cooling down rising home prices, Wang Li said.

As of the end of August, China had begun building 4.1 million low-income housing units, accounting for 70 percent of the full-year plan, while investing 470 billion yuan ($70 billion), or 60 percent, of the full-year plan, said Hou Ximin, an official from the Ministry of Housing and Urban-Rural Development.

China also plans to build 3 million low-cost rental-housing units, transform 2.8 million units found in shantytowns, and renovate 1.2 million dilapidated rural houses this year.

Finally, China's real estate market has undergone a substantial upswing in the past two years. A report released by the CASS showed average home prices in China rose 25.1 percent year-on-year in 2009, outpacing the annual income growth of urban residents by 15.3 percentage points.

(Xinhua News Agency October 5, 2010)