House supply boost

Realty prices in metropolises such as Beijing are continuing to show a strong rising trend, dimming the hopes of tens of thousands of young birds to own a nest.

The rising trend is also troubling local governments, which are finding it difficult to control house prices.

To curb market expectations of further rising prices, which might prompt more people to join the market and so push prices even higher, the Beijing Commission of Housing and Urban-Rural Development recently issued seven new measures, focused on increasing market supply.

According to the new measures, several plots of land will be auctioned by the end of the year for the construction of 20,000 apartments for self-use. These will be 30 percent cheaper than market prices. "Self-use" means that the buyers will not be able to sell the properties until five years later, and when they do they will have to pay 30 percent of the proceeds to the government.

Another 50,000 apartments are planned for next year. Unlike affordable housing for low-income families only, the self-use apartments will allow anyone qualified to buy a house in Beijing.

The new measures are aimed at enlarging the supply. For the past several years, there have been huge inflows of people into cities such as Beijing and the supply has failed to meet the demand. For example, official data show that the number of apartments for sale in Beijing has fallen from 109,000 in September 2011 to 60,000 this month, which has pushed realty prices higher.

That's why the new measures are welcome, as by meeting rather than tempering demand, they will have a longer lasting influence upon the market.

But how effective will the new measures be? That depends on strict supervision over their implementation. With prices being far lower than the market average, the self-use commodity apartment is very good material for investment even though part of the gains must be paid to the government. Like affordable housing and price-limited apartments, the new self-use apartments will not be immune to corruption.

Another concern with the self-use apartment is quality control. Developers actually lose a considerable part of the profit in building and selling such apartments; so it is not impossible they will seek to reduce the cost by compromising construction quality, as has happened in previous affordable housing programs. That in turn requires relevant government departments implement strict quality control to prevent possible quality defects.