Chinese Cities Take Steps to Tame the Housing Dragon

According to Michael Pettis, who teaches finance at the University of Beijing and is a senior associate at the Carnegie Endowment for International Peace, China "is awash in cash and credit," stoking fears of an out of control housing bubble.

Housing prices rose by an average of 3.1 percent in February in many big cities in China, and the cost of buying a house has doubled in the past five years.

Governments in Beijing and Shanghai are taking steps to slow this growth, fearing an oncoming housing bubble and growing discontent about social inequality.

They are contemplating imposing annual property taxes, which currently do not exist in China, and have levied a capital gains tax of 20 percent on property sales. Additional measures include restricting unmarried people to one residence in Beijing and making it difficult and more expensive to take out a third and second mortgage in Shanghai by instructing banks to refuse loans to prospective buyers.

The governments in Beijing and Shanghai have also committed themselves to building more affordable housing to accommodate migrants into the cities.

So far, players in the housing market have managed to find loopholes in regulations, causing markets to soar, reports David Barboza.

Full Story: 2 China cities move to cool overheated housing market

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