But in a zero-sum housing market, the drastic rise in some people's wealth and local governments' fiscal revenues that a booming housing market has caused mean others, especially lower-income homebuyers, have to dig deeper into their pockets.

The pursuit of higher profits has prompted some people to channel various kinds of social resources into the housing market over the past decade, which is tantamount to hijacking the national economy to benefit the housing sector. The realty-dependent economic model has seriously hampered China's efforts to change its industrial structure and transform its economic development strategy. It has also resulted in a series of social issues, ranging from serious uneven income distribution to corruption and hatred for the rich.

If the housing bubble continues to expand with the same momentum it has done in the past decade, the consequences will be devastating when it bursts. It would cause banking and financial crises - even economic and social crises cannot be ruled out. And if such a thing happens, it will push China into a decades-long economic recession, akin to what happened to Japan after its housing bubble burst in the 1980s.

Housing prices in China increased further in recent months largely because the market believed the country's new leadership would not take measures to change the existing housing policies after assuming office in March. There is speculation that even the current housing regulations could be loosened or lifted.

Despite its unwavering determination to maintain strict housing regulations, as indicated by the tone of the Central Economic Work Conference, the government has so far failed to take forcible measures to change the housing market's speculative nature. On the contrary, the recent emphasis on urbanization and accelerated efforts to provide more housing units is likely to fuel fresh speculation in the real estate sector if preventive measures are not taken soon.

The trend of the housing market this year will be decided by how far the government will tolerate further increase in housing prices and whether it takes necessary measures to turn the real estate sector into one led by self-accommodating demand. That, however, will depend on the new leadership's determination to press ahead with stricter housing regulations. If speculation in the market persists and necessary measures are not taken to change the housing sector's trend, housing prices will continue to rise and inflate the price bubble further, which will push China toward the old economic growth model.

But if the new leadership shows zero tolerance toward speculation and expedites efforts to implement sweeping reforms in the housing market, such as adopting harsher credit and taxation policies, to deflate the price bubble, then the market will jump back on the track of reasonable and healthy development.

The author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences.

(China Daily 01/12/2013 page5)