CHINA has resorted to administrative measures to try to rein in housing speculation after a raft of tightening polices failed to cool the red-hot sector. But the key dilemma is how to ensure these latest moves won't hurt buyers seeking shelter rather than profits.

Big cities, including Shanghai and Beijing, have recently unveiled detailed rules to implement national government austerity measures focused on property speculation.

Beijing has started to prohibit local households from buying more than two homes and demanded that out-of-towners provide five years of tax documentation in order to buy only one flat in the city.

Shanghai adopted a similar mechanism, allowing both residents and out-of-towners to buy only one new apartment. Out-of-town families who cannot provide tax or social insurance certificates to prove they have lived here for an accumulated 12 months over the past two years will be banned from buying homes.

Follow suit

Eighteen cities in China, whose housing prices were deemed by central authorities as rising too fast, have unveiled similar purchase-limit policies, and another 18 are expected to follow suit in the coming weeks.

From my perspective, the get-tough policies may indicate the central government is growing increasingly jittery about the housing price bubble and fears that monetary tightening alone won't work to dampen investment frenzy.

By restricting housing purchase to largely self-habitation, authorities apparently hope they can rein in rampant property speculation, ending the rally in housing prices and returning to a more stable market for bona fide first-time homebuyers.

Apart from the purchase limit, China in late January also unveiled "the toughest-ever" mix of property market policies by raising the minimum down payment for second-home purchases and setting up property tax pilot projects for residential homes in Shanghai and Chongqing.

Local governments are for the first time required to set a home price target for this year and publish it in the first quarter. If prices rise beyond the targets, the governments face recriminations.

However, no local government has unveiled its target yet. It will be extremely interesting to see how they map out their strategies for reining in speculation. It will also be interesting to see what repercussions they face if they don't meet their goals.

In my view, relying on administrative measures to deal with rising home prices will distort supply and demand in the long run, dent real estate volumes and potentially stoke social unrest.

For big cities like Shanghai, Beijing and Guangzhou, a purchase ban imposed on a large number of out-of-towners will more or less stab the dreams of young people across the country who want to seek their fortunes in the opportunities of urban areas.

A constant rise in housing rents, coupled with increasing food and transport costs, may force young talent to redirect their career paths to up-and-coming inland areas, exacerbating a skilled labor shortage that could threaten the sustainable development of coastal cities.

New home prices in January continued to grow from a year earlier in all but two of the 70 Chinese mainland cities monitored by the central government. New home prices in Beijing advanced 6.8 percent, while those in Shanghai climbed 1.5 percent.

At the same time, housing transactions dropped sharply in Shanghai and Beijing, and supply also shrank to its lowest in almost a year as developers delayed property sales amid sluggish turnover.

The government's more draconian efforts will no doubt hurt couples who want to buy a home for non-speculative reasons. They may find it extremely hard to secure an ideal apartment due to lack of housing supply, and they may also face unreasonably high mortgage rates in this tightening environment.

The Chinese government can't afford to be too aggressive in its tightening drive. The events of 2008, when China applied the brakes too hard and triggered a serious downturn, are still fresh in memory. That's why authorities still keep repeating the pledge of maintaining the country's credit expansionary policies this year.

Ample funds

It means that developers could have ample funds, at least for 2011, and housing prices won't likely drop under such a scenario. The government should indeed work out more measures to meet the growing housing needs of those who work so arduously to contribute to the country's economic growth.

First, mortgage rates and down payment ratios for first-time buyers shouldn't be set as high as the current levels.

Most banks now don't offer any discount on mortgage rates and require buyers to pay at least 50 percent of the cost of a unit to get a loan.

Second, for out-of-town professionals with special talents, rules should be set up to allow them to buy houses even if they haven't lived in big cities for proscribed times. Regulators shouldn't simply rely on tax certificates to define whether a buyer is a speculator.

What's more important, the government must ensure housing supply remains strong even as it tries to curb demand. Building affordable residential projects should be a high priority for every local government.

Subsidized housing currently accounts for only a tiny proportion of the overall property supply on Chinese mainland. The central government has pledged to ramp up investment in affordable housing this year. The aim is to build 10 million affordable units, up from 5.8 million in 2010.

The State Council, China's cabinet, has demanded that provincial governments ensure a supply of affordable homes, saying that land reserved for such projects should account for at least 70 percent of all land earmarked for housing development.

These policies are positive, but they must be implemented well to ensure that subsidized housing is offered to those with real needs instead of to those seeking to turn a home into profit. Fraud by unqualified applicants has already been uncovered in some local government programs.

We will likely see a drop in housing prices in the years to come, and more people may well be able to buy their own home. But before that, we have to ensure people have the right to have their reasonable demand for a fulfilled life met.