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Pros and cons for China’s price-limit housing

Sample ImageChina's first batch of housing with limits placed on the selling price and on floor space of each apartment went on sale last week.
Poly Real Estate Group Co. Ltd., which built 843 apartments each selling at 6,500 yuan per sq meters, at Jinshazhou of Baiyun District, Guangzhou City, sold about 700 flats on February 16, the first day of sale.
Only households certified by the Guangzhou Land and Property Administrative Bureau can buy homes from Poly's price-limit housing development project.   
Housing prices continued to soar in China's major cities in the fourth quarter last year and are likely to rise this year too.
The average housing price in China's 70 large- and medium-sized cities climbed 10.2 percent in the fourth quarter of 2007 from the same period of 2006, according to the National Development and Reform Commission.
Houses have been getting more expensive despite government efforts to curb real estate investment and shelter low-income families.
The efforts have been characterised by increased supplies of low-rent, affordable housing, and price-limit housing which aims to expand the supply, and help stabilise prices. 
The Chinese Minister of Construction Wang Guangtao backed the scheme, saying price-limit housing would be a principal means of helping families with median income in large and medium-size cities solve housing difficulties. 
Guangzhou is not the only Chinese city that has been attempting to address the problems of rising costs of property and to provide all urban dwellers with housing through price-limit housing.
Beijing started construction of 3.12 million sq m price-limit housing last year. Building of an extra 4.5 million sq m housing of the same kind will start this year, according to Li Sanzhong, an official with the Municipal Development and Reform Commission.   
Beijing Municipal Construction Committee has asked for public opinion on price-limited housing on its website. Only urban families whose annual income is below 88,000 yuan (about 12,054 U.S. dollars) can buy the price-limit housing. More Chinese cities are expected to follow suit.
But will the solution of price-limit housing really work as decision makers expect it? At the moment, the cons have overshadowed the pros.
Fu Weichong, chairman of the board with Hopefluent Group Holdings Limited, a real estate counselling business, vehemently opposed the practice.
"It is a bad idea to implement the price-limit housing policy or carry out the practice of building apartments with subsidies from working units," said Fu, who is also a member on Guangzhou city committee of the Chinese People's Political Consultative Conference (CPPCC), a government work advisory body, during a group discussion on economic affairs held in Guangzhou.
"Price-limit housing should be abolished as it will bring along new inequality and will do harm to the harmony of  society," said Fu.
Fu was confronted by Ou Muhua in an online posting with saying that one benefit of price-limit housing is to help squeeze bubbles in price adjustments.
The government-supported price-limit housing lacks a theoretical basis,and would be considered as "gilding the lily", said Xu Dianqing, an economist, during an interview with China Real Estate Business, a Beijing-based newspaper.
"Housing prices are complicated, and are decided by diverse factors of real estate projects such as location, environment, structure and quality," said Xu.
"The intention on the part of the government is to transfer part of the profits of the developers to home buyers by way of setting a ceiling on the selling price of certain housing, but that intention is hard to meet in reality and in the end the quality of the housing suffers."   
The effect of the price-limit housing is restricted, said another posting on "The government is suspected of shirking its responsibility by practising the price-limit housing policy," said the posting, "such policy only helps rich people save some money to buy homes but could by no means help poor people solve housing problems against a backdrop where the market plays a role in supply of land, construction materials."