THE government should guard against the risk of falling property prices and a potential crisis if home values start dropping below mortgages, a prominent economist warned.

Some Chinese cities have already set a floor for property prices in addition to price caps, and the vacancy rate in some regions have topped 10 percent, Li Yang, chairman of the National Institution for Finance & Development, was quoted as saying by the Economic Daily in a report yesterday. The institution is a think-tank that advises the government under the Chinese Academy of Social Sciences.

“If one day the value of houses plunged below the mortgage value, people won’t even be able to repay their debt by selling the houses, and that would be a real crisis for the property market,” Li was quoted as saying.

China’s home ownership rate was 90 percent in 2020, far higher than the global average of 69 percent, which makes it difficult for cities to contain price increases and speculation in the market, according to Li.

In Germany, the rate was only 43 percent, while 57 percent of households lived in rented houses, he said. China needs to create an effective rental market, he added.

Volatility in the property market and mortgage financing have had major effects on economies, and the distortion in markets like the United States and Japan triggered long recessions there, Li said.

China has widened curbs on property over the past year with a slew of new policies and regulations, signaling greater determination to curb the market even as the economy starts to slow.(SD-Agencies)