Mainland property owners are pinning their hopes on a revival in prices on an expected new round of policy measures by the government to restore confidence among buyers who are now sitting on the sidelines because they fear there will be further declines in property values.
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China Property Owners Pin Hopes on New Policy Measures
Fulton Mak and Reuters
15 October 2008
Mainland property owners are pinning their hopes on a revival in prices on an expected new round of policy measures by the government to restore confidence among buyers who are now sitting on the sidelines because they fear there will be further declines in property values.
Among measures under consideration by the government, reported by the mainland newspaper China Economic Times last week, were cuts to the present land value-added tax, relaxed mortgage rules and reduced transaction taxes.
The report cited no sources, but said the State Council and other government departments were studying the measures.
Nevertheless, Shi Lei, an analyst with TX Investment Consulting in Beijing, said relief measures were imminent. “The central government will issue a nationwide policy-easing package towards the end of this year as the downturn in the property market deepens,” Mr Shi said.
The China Real Estate Association has, meanwhile, added to pressure for relief measures by formally requesting permission from the State Council for local governments to take unilateral action. It has also asked for measures to encourage people to move up the property ladder.
Without waiting for any nationally co-ordinated moves, an increasing number of local governments, mainly in the fast-growing cities, have already relaxed policies under their control out of concern that a slack real estate market will bite into their tax revenues and further weigh on already weakening local economies.
These cities, namely Chengdu, Changzhou, Chongqing, Xian, Shenyang, Changsha, Xiamen, Henan and Nanjing, have sequentially rolled out measures to revive their local property markets over the past two months.
The measures mainly target cuts in transaction costs and reductions in down payments required if housing provident funds are used in deals.
The latest is by the Suqian city government in Jiangsu province, which will provide subsidies at 7 per cent of the flat price if homebuyers purchase an apartment of less than 90 square metres and above 16 storeys, setting a new record for government subsidies for homebuyers in mainland cities.
However, judging by sales data compiled over the holiday period, the measures have so far failed to have a material impact on reviving buying demand, prompting analysts to guess that more measures are now in the pipeline.
“China will continue to roll out other measures in a more concerted effort to support the stable and healthy development of its real estate sector,” said Lu Zhengwei, the chief economist of Industrial Bank in Shanghai.
“In my view, the central authorities should have relaxed [policies] long ago, considering the importance of the property industry to our economy.”
Latest data shows sales remain sluggish and prices in some major cities such as Shenzhen have plunged by up to 40 per cent since Beijing intensified a campaign a year ago to curb excessive price rises and encourage the construction of more-affordable homes.
Many experts fear that, without fresh stimulus, the property market will sink further and drag down the economy.
According to official data, real estate accounts for about 24 per cent of China’s urban fixed-asset investment and is a crucial driver of industries such as steel, furniture and household appliances.
“There is definitely more room for further rate cuts as they are still at sky-high levels,” said Lai Kwok-keung, director and general manager of Centaline (China).
In addition, measures aimed at reducing taxes and transaction fees were also likely to cut buying costs and more importantly to restore the public’s confidence in the market by showing that the government was supportive of the sector.
Mr Lai said speculators, who were the main target of the austerity measures, had now been driven from the market, giving the government scope to introduce some relief for genuine buyers.
However, analysts at brokerage house Nomura International did not believe now was a good time for Beijing to actively stimulate the property sector.
“The fact that the central government has remained silent, allowing local governments to deliver local market supporting measures, shows recognition that property markets in different cities have been affected to varying degrees by the downturn and are at different stages of the property cycle,” said Nomura.
“As such at this juncture, it is more appropriate to allow local governments to deliver their own medicine.”
The brokerage house believes supporting measures are unlikely to draw buyers back since housing prices remain high and the significant imbalance in the excess supply of housing that was built up over the past nine months still exists.
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