BEIJING ( Caixin Online ) — Government adjustments to housing prices should aim for an up-to-25% downward revision, according to a report by Agricultural Bank of China, one of China’s big four state banks.

Official statements made at the recently concluded central economic work conference indicated that urban housing prices should return to “reasonable levels.”

Agricultural Bank of China’s Strategic Research Department presented an indicative range for housing prices in different cities, if prices were to fall to 6 to 8 times the average level of household incomes. Figures from the United Nation’s 1998 survey of housing affordability in 96 countries were used to calculate the ratio of housing prices to incomes.

According to the bank’s research, for housing prices to be reasonable, they should first drop to a level which most residents can afford and then climb at a stable and relatively low pace.

The report concludes that, in the first stage of adjustment, housing prices in the most developed, first-tier cities need to drop between 10% and 25%; prices in second-tier cities need to decrease by 5% to 15%, while prices in third-tier cities should drop to a level that matches current urbanization levels.

The calculation was based on assumptions that China’s average real household income is 1.5 times the figure released by the National Bureau of Statistics, and that the average floor space of housing is 60 to 65 square meters in first-tier cities and around 80 square meters for less developed cities.

In the long run, the report suggested that housing prices should grow at a slower pace than the inflation-adjusted growth rate of urban residents’ disposable incomes.

Source:marketwatch.com