[By Jiao Haiyang/China.org.cn]

Although this is the last year of China's current government, it will be consistent in its efforts, and won't procrastinate on things it is capable of doing.

These are the words of Premier Wen Jiabao during a public review of the central government's work from February 6 to 10. The premier's address included pledges to ensure home prices fall to reasonable levels. His remark is intended for a general audience, but to some it will come as a stern warning.

To curb astronomical home prices, the government has enforced measures such as prohibiting the purchase of third homes to rein in speculation, increasing minimum down payment and capping the per square meter prices of houses in some locales. These measures have worked, and thus may remain in place for a while.

But since they take a huge toll on some local governments' finances, there have been attempts to do away with them. The Oriental Morning Post reported on Monday that Wuhu, Anhui Province, announced a plan to subsidize home purchase on February 9.

According to the plan, home buyers will enjoy a 100 percent rebate on transaction taxes. Moreover, they will receive subsidies ranging from 50 yuan (US$7.3) to 300 yuan per square meter, depending on the size of apartment purchased and their educational level.

The plan is vague on whether subsidized properties are first or second homes, which could be exempt from state restrictions. That vagueness raised Beijing's eyebrows.

Short-lived decrees

Following a subsequent probe, Wuhu authorities were ordered to back out of the scheme, although they insisted it was not aimed at stimulating sales. In a typical case of short-lived decrees in China, the plan was scrapped four days after it was unveiled.

Wuhu's short-lived decree has company. Last October in Foshan, Guangdong Province, authorities flirted with relaxing the home purchase ban. Due to pressure from above, they "suspended" such unsanctioned easing within 12 hours of its initiation.

There have been "softer" approaches to chipping away at the state mandate. Starting January 22, the government of Zhongshan City, also in Guangdong, raised the price ceiling of homes from 5,800 yuan per square meter to 6,590 yuan, a move that local officials said was in keeping with the city's GDP growth, Wenhui Daily reported on Monday.

The raised price ceiling reportedly will free 60 percent of the city's properties for sale, delighting desperate developers and the city's fiscal authorities.

Deep in debt

Dwindling home sales have left many localities in dire straits, especially those highly reliant on revenues generated by land sales.

Even for economically vibrant Foshan, land sales make up nearly one third of its revenue, a percentage on par with first-tier cities in the country. For underdeveloped inland cities, that figure could be as high as 50 percent.

As money flow from the real estate sector begins to dry up, many cities are waist deep in debt. It remains to be seen how local loans, 35 percent of which will come due in the next three years, will be serviced in the absence of the cash cow that is real estate.

That explains the pervasive local impulse to break the chokehold of home purchase ban and price curbs.

An unnamed developer was quoted as saying in the Oriental Morning Post that days ago property shares rallied on speculation that Wuhu's practice might be emulated elsewhere. Beijing thus could only dampen this collective illusion.

Beijing's forceful responses are a sign of its resolve to continue its clampdown on the property sector, but how long can that resolve last before it badly hurts the economy? After all, governments cannot rule only by fiat. Administrative intervention ought to be gradually wound down and market forces, like a property tax, be introduced to ensure transparency and fairness.

Nevertheless, as long as most localities lack alternative sources of revenue as reliable and lucrative as property, how will Beijing force the necessary changes to happen?

Governments at all levels are abuzz with talk of innovating the economic model and weaning themselves off real estate. That is an elusive goal, and it is doubtful that many are truly that innovative, as the recent gambits of Wuhu and Zhongshan have shown.

Related

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• China mulls more regulation of property market

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