BEIJING, June 8 -- There are many false prophets of upward housing prices, but few could be more ridiculous than Chen Xumin who argued that China's housing prices would rise for another 10 years simply because the number of this year's college entrance exam takers is so big.

    "The demographic structure of the Chinese population would dictate rising real estate prices for the next 10 years. Governments can't stop it," author Chen Xumin argued in his article published in Guangdong Province-based newspaper New Express on Monday.

    Nonsense.

    Chen noted that the number of registered exam takers this year is above 10 million, mostly aged 18 to 19, the highest ever.

    Chen assumed most of this generation would need to purchase houses at age 28, the ideal age for marriage and bearing children.

    That means the demand for real estate would keep rising until 2018 when those of the 1980 vintage will be around 28.

    The housing supply is not expected to increase dramatically, so the price of real estate will remain high or even soar, Chen concluded.

    Chen is not alone.

    Ren Zhiqiang, head of a Beijing real estate development company, announced on February 7 that if supply did not expand, the tension between supply and demand, and hence high prices, would continue for at least 10 years.

    More nonsense.

    I cannot help admiring Chen and Ren for their expertise in basic economic and extrapolation. But this is nothing but sophistry. They have overlooked the facts that disprove their theory. They may be deliberately trying to delay the day when the bubble bursts by trying to get people to believe this rubbish.

    First, the current price of newly built houses and apartments in most cities is beyond the reach of the vast majority of citizens. Building costs are much lower than selling prices no matter how one calculates - that's not normal.

    Some economists estimate that the greatest part of the huge profits is swallowed by land authorities and developers.

    Second, the real estate market in many regions is prone to bubbles because of intense speculation in the last few years.

    Wang Xiaoguang, an economist from the National Development and Reform Commission, said this week the number of houses constructed over the past few years has actually surpassed demand.

    A large number of houses in many cities are left in the hands of developers or controlled by some speculative investors, Wang indicated.

    One of the tricks developers play to bid-up housing prices is the so-called fictitious transaction - falsely reporting sales that never take place.

    Tomson Riviera, a luxury apartment block in Shanghai, made a sensation in 2005 with its astonishing average price - 110,000 yuan (14,387 U.S. dollars) per square meter - will be investigated by the city government, along with other two projects, the Xinhua news agency reported on Wednesday.

    A smokescreen

    Since the beginning of its "sales" in 2005, only three contracts were signed but all of them were canceled. There seem to have been no real transactions. Is it a smokescreen to justify the price?

    The abnormally high price level of real estate in many cities in recent years cannot be explained by the great number of young people or the tension between supply and demand.

    Sure, there are many young people, the demand is high, but the average price of not less than 10,000 per square meter in many cities is simply beyond the capacity of most buyers.

    This is unhealthy. Why has it existed? One notable reason may be the notion that buying real estate is a good investment. Developers, media and some scholars tell people housing prices will soar.

    If people didn't believe this, there would be panic and the bubble would burst.

    In order to postpone that day, some people may deliberately be trying to mislead the public by talking about the age structure and the supply gap.

    As to what's really going on, they remain silent.

    They deliberately ignore the myriad empty apartments that investors or speculators will have to sell, however slowly, over the next 10 years.

    That's why we hear sophistry and nonsense.

    (Source: Shanghai Daily)