Stricter loan requirements might lead to a weakened property market and price decline in the short term, but more diversified types of housing is the solution to China's property market dilemma, economists say.

The government should provide more options to China's home buyers besides expensive commercial housing, said Zhang Hanya, director of the Investment Association of China while speaking on a talk show this week on CNC World, a new global satellite news television service launched by Xinhua.

The Chinese government introduced tough measures to curb skyrocketing home prices in April, after prices rose by a record 11.7 percent in March in 70 major Chinese cities.

A raft of central government measures have been implemented in the past month, including more restrictive down-payment requirements, higher interest rates, a ban on lending for third home purchases, and increased scrutiny of developers' financing.

Local governments have also been strict it seems. In Beijing, for instance, one family can buy only one new home.

"The government is moving in the right direction, but it should go further," Zhang said, noting that most of the measures are focused on curbing speculation.

Zhang was echoed by Wang Jun, researcher with the China Center for International Economic Exchanges, who also talked on the show.

The new policies are actually cooling the market by restraining the demand, but they only serve as temporary measures, Wang said.

Given the high urbanization rate, demand for houses by Chinese citizens will remain strong in the next 10 to 20 years, he said.

"It's like pressing a spring. The longer you press it, the more energy it stores, and when you let it go, everyone knows what will happen," said Wang.

Both experts agreed that instead of simply stopping people from buying new homes, the government should increase supply to meet the strong demand, especially increasing supplies of affordable housing and low-rent homes.

According to Zhang, the government should not interfere much with the price trend in the market of commercial housing. "It goes against the market economy and free trade," he said.

But the government is responsible for ensuring supply so citizens can have comfortable homes, therefore, it should build a "multi-level housing supply system" emphasizing a balance of low-rent housing, affordable homes, and commercial residential housing, Zhang said.

When Chinese citizens can buy good quality affordable homes or low-rent apartments, there will not be so much demand in the commercial housing market, and prices will eventually fall, said Wang.

(Xinhua News Agency May 17, 2010)