BEIJING (Reuters) - China’s property market has become a major source of financial risk and Beijing cannot rely on adjustments to monetary policy alone to resolve the “serious” problems caused by the sector, a central bank official wrote on Friday. FILE PHOTO - Residential buildings are seen in Beijing, China, January 10, 2017. REUTERS/Jason Lee/File Photo Xu Zhong, head of the People’s Bank of China’s research bureau, said in an article in a central bank publication that there should be a property tax on homeowners nationwide as a way to help control prices. Chinese homeowners do not pay a recurring property tax on their homes, which they technically lease for up to 70 years, with the exception of a very small number in property tax trials in Shanghai and Chongqing. Xu also said authorities should maintain strict controls over property markets in first and second-tier cities, where prices gains have been the strongest. His suggestions focused on the need to develop a long-term mechanism that supports the healthy development of China’s property market, which has been subject to several cycles of overheating and tight regulatory clampdowns over the past decade. New home prices in major cities rose 9.7 year-on-year in July, while investment growth eased to 4.8 percent, the statistics bureau has said. “Real estate has serious problems such as crowding out investment (from other areas), impeding the transformation and healthy development of the economy, and is also an important source of financial risks”, Xu wrote. He blamed the property bubble on lax financial market oversight and local governments’ practice of pushing up prices in land auctions, which limits supply, and said the government should drop the practice of using property policies to influence broader economic development. Xu’s suggestions for deflating the bubble include relying on market-based reforms to improve land supply. He favors an annual property tax as part of broader tax reform that reduces local governments’ reliance on land sales for revenue. China should also consider including measurements related to home mortgage loans in its macro-prudential framework for assessing risks in the financial sector, Xu said. “We must pay attention to the impact of property prices on macro control policies,” Xu wrote. “We can consider adding indicators on volatility in broad property lending to the macro-prudential assessment system to control property price volatility from the perspective of growth of property lending.” Reporting by Stella Qiu and Elias Glenn; Editing by Richard Borsuk
China 's property market is now a major source of financial risk , warns economist ##qing , the head of the People 's Bank of China 's research bureau , adding that the Chinese government can not afford to rely on adjustments to monetary policy alone in the hopes of resolving the " serious " issues caused by the property sector . He believes a property tax should be imposed on homeowners along with stricter controls . “ Real estate has serious consequences such as crowding out investment ( from other areas ) , impeding the transformation and healthy development of the economy , and is also an important source of financial risks ” , said economist .