Some scholars believe that because the rent-to-price ratio in China is much above the global standard (1/200 in mature market economies) there is a housing bubble in the country. They say so because they ignore the difference in calculating housing prices in and outside China, and the impact on the ratio caused by the differences in residential culture, land ownership systems, macro-control measures. Chinese people, traditionally, have longed to own a house and are reluctant to rent one. This inevitably boosts the housing demand and increases property prices. And since houses are rented mainly by low-income groups, the rates cannot be high. So a person who owns more than one house would be reluctant to rent it out, instead he/she would want sell it off at a high profit.

Apart from trying to increase housing supply, the government's newly issued measures are aimed at controlling demand. And the government will try to meet its goals through its administrative accountability system. As a result, the supply-demand relation will change significantly in the short term.

As far as demand is concerned, some homebuyers will adopt a wait-and-see approach for fear of later policy (tax and interest rate) changes, others may be worried over the rising transaction costs, and still others may defer their purchase plans till the "bubble bursts". Such panic sentiment would lead to a decline in demand.

For supply, "real estate speculators" will undersell the houses they have "hoarded". Though the number of such houses is not big, it could greatly influence the decision of property developers if the media "sensationalize" it. Fearing devaluation of their assets, some people who own more than one housing unit, too, would undersell their property. And some developers could cut prices to sell their housing units.

A larger number of incremental units are expected to flood the housing market after six months. With supply rising and demand falling, housing prices may begin to fall and certain cities could experience remarkable price volatility.

The worry, though, is not fluctuations in housing prices but how the authorities will address the problems emerging in the macro-control process. The financial market will be impacted, threatening credit quality. Part of the credit funds would be forced to flow into areas with excessive capacity, high-quality mortgage loans would face limitations, and if housing prices plunge by 20 or 30 percent, contract violation cases will increase markedly.

When housing prices plunge, demands usually hibernate and buying is suspended, which in turn will intensify the overcapacity of industries relying on property development. So the end of 2010 and beginning of 2011 may see a sluggish market like what happened in late 2008 and early 2009.