Home prices enter downward spiral

New home prices fell month-on-month in 68 major cities in China in August, including Beijing, Shanghai, Guangzhou and Shenzhen, according to data released Thursday by the National Bureau of Statistics (NBS).

The price drops are remarkable considering that housing prices in the four first-tier cities have been seen as resistant to falls. The NBS data also showed that prices fell for both new and secondhand homes, indicating that China's property market has entered a period of decline.

With prices falling, home buyers are now less inclined to buy.

The central government has also accelerated its slum reconstruction plan. With this, along with more affordable housing units gradually hitting the market, the increase in supply can only push prices down further.

In addition, concerns about inflation have made it nearly impossible for the central government to pursue a loose monetary policy, so there is almost no chance that developers will find relief in easy credit.

Under the circumstances, it is inevitable that housing prices will keep falling. As such, the central government should establish a mechanism to prevent property prices from experiencing large fluctuations in either direction.