China’s real estate market, barely existent a decade ago, encountered its first big downturn in 2008. The Central Government had been deflating a housing-market bubble since 2005 and started to see its efforts paying off.
Last December, the country’s housing prices dropped 0.4% from a year earlier, the first decline on record, and the total area of homes sold last year plummeted 20.3% as slowing economic growth deterred homebuyers, according to the National Bureau of Statistics (NBS).
Prices for new homes in the southern city of Shenzhen tumbled 18.1% last December, the largest decline among all 70 large and medium-sized cities surveyed.
A cooled-off property market is the last thing the government wants amid the global economic slowdown, although tamping down the housing market has long been a Central-Government objective. During the past decade, property-related activities became a major growth engine and have accounted for a considerable chunk of local government revenue in China.
Following a string of measures it enacted last autumn to encourage home purchases, the State Council on December 20 formally started to require property developers to adapt to the changing market and boost home sales at reasonable prices as part of its guidelines to promote the sound development of the real estate market.
At the same time, local governments were granted the authority to design their own policies and measures to stabilize their property markets.
Analysts applauded the Central Government’s decision to grant such power to the local governments, because property markets have developed unevenly in different regions in the country.
The Central Government had previously adopted a more stringent management policy for property markets nationwide to curb real estate speculation in 2005 when housing prices rose rapidly in Shanghai. This move was later criticized as ‘offering the whole country pills because Shanghai caught a fever.’
But some real estate analysts doubt whether local officials, given such freedom to maneuver, will be capable of making sound decisions about the property market or have the political wisdom to balance the interests of all involved parties.
Hu Shuli, founder and Managing Editor of Caijing Magazine, which consistently gets it right, said in a recent article that this ‘visible hand’ of government involvement must ‘behave with restraint.’ The government should ‘give the market time and space to heal itself’ during the adjustment period in its normal cycle, because ‘a reasonable adjustment will squeeze out the bubble and reduce financial risks.’
While more cities nationwide have joined those in the rich coastal region to work out their own measures to boost residential property sales, leaders of cities such as Beijing, Shenzhen and Guangzhou have rejected the temptation to intervene, saying housing prices are still much higher than what urban residents can afford.
Beijing Mayor Guo Jinlong on January 13 during a municipal conference, said, according to a report in the Beijing News: ‘We will not support high housing prices in Beijing. But the government is responsible for escalating land costs and surging property loans, which have driven up housing prices in the past years.’
Property developers are under huge pressure to cut prices and sell their current inventories of homes as soon as possible this year, because the government’s huge affordable housing investments over the next three years will augment the oversupply and likely lower average home prices, Pan said.
The Beijing Review reported he said, ‘The property market will regain its confidence only when the transaction volume climbs. The shrinking transaction volume indicates potential buyers are still unhappy with the prices.’