The property market in China has had a five-year boom and a five-fold expansion in transaction from 1994 to 2003. In 2003 the government acted to prevent it from overheating. This paper reviews the developments of and analyses the key factors affecting the property market. It examines government policies to cool down the property industry and indicates its intention is to promote market practices that are compatible to an open market. The paper then analyses the existing practices, based on the distortion of market rules that reduce the cost of development and lead to perverse incentive in property development. It then outlines reforms designed to tackle those practices. The paper concludes that the current boom is likely to be sustained for an extended period.
