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China should cap new home prices to avoid 'severe' problems: state researcher

Reuters

BEIJING (Reuters) - China should urgently solve problems in its property market by putting a cap on the prices at which new homes are sold, a researcher for the cabinet was quoted as saying on Wednesday by a state-owned newspaper.

"The government should strengthen price controls on commercial housing to prohibit exorbitant profits by executing a price cap on new houses, which should be calculated by adding reasonable profits, say at maximum 20 percent, to costs," said Tang yuan, department chief at the Policy Research Office of the State Council.

Tang told the Economic Daily that while a series of government measures aimed at stemming speculative demand and restraining price hikes had shown "certain effects", the overheating in first-tier and some second-tier cities remained unsolved, and problems of an overly profit-driven industry were "far from being solved".

Prices of new homes in China increased last year at the fastest rate since 2011. In Shenzhen, Shanghai and Beijing, prices rose more than 20 percent from 2015, but increases moderated in December on a monthly basis.

Tang said the actual costs to develop properties in Beijing's core city zone, at 10,000 yuan ($1,463) a square meter, are only one-sixth of the average selling price.

"Property prices in big cities have severely diverged from their real value, far exceeding China's economic development reality and our residents' affordability," said Tang.

He warned that disproportionately high prices have created severe bubbles in the economy as companies in the real economy have turned to property for bigger, quicker profits. Property speculation has also led to widened inequality and distorted social values that have prompted phenomenon such as fake divorces.

"China has become over-reliant on the property market for economic growth over the past decade... If we don't solve these problems quickly, the consequences will be severe," Tang said.

(Reporting by Yawen Chen and Nicholas Heath; Editing by Richard Borsuk)

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