Business / Opinion

Housing stimulus unsustainable

(China Daily) Updated: 2014-07-01 07:40

Hohhot, the capital of the Inner Mongolian autonomous region, has broken the silence to become the first provincial capital city to suspend the ban on second-home purchases by local residents.

However, the move taken by Hohhot's authorities to stimulate local housing sales, as a way of easing their fiscal crunch, is unlikely to produce the desired effects in the short run, a Southern Metropolis Daily article said.

Housing stimulus unsustainable
Pan: China's property market, another Titanic 
It is an indisputable fact that after experiencing a property boom in the previous decade, the current decline in house sales has plunged many local governments in China into a difficult economic position. The reduction in revenue has forced some local governments to cut their spending on infrastructure construction and urban renovation. As a result, targeted measures to boost housing markets are viewed by local governments as the quickest and also most effective means to swell their coffers.

However, although local governments are allowed to manage their housing markets at their discretion in accordance with market principles, the central government has maintained its housing market regulatory policy basically unchanged.

To create a more favorable development environment, the central government is doing its utmost to funnel public funds into the real economy. In an inspection tour of the Inner Mongolia in May, Premier Li Keqiang once again stressed that the financial sector should support the real economy.

The moderate fall in housing prices that has occurred in some regions remains a trend that will continue into the future. The accelerated efforts of developers to lower prices as a means to generate funds, as well as concentrated sales of redundant homes by some officials in the context of the forthcoming adoption of a real estate registration regulation nationwide, make such a housing market trend certain.

Such a general environment, together with potential homebuyers expectations that house prices will continue to drop, mean that any housing market rebounds caused by short-term administrative stimulation are unlikely to be sustained for long. The increased risk consciousness among developers, investors and speculators also undercuts the possibility for any rebounds in housing prices.

No matter how tightened their fiscal conditions are, local governments should realize that any short-term administrative means to boost the housing market will be harmful and not beneficial to local economy, and they need to support the real economy instead.

Hot Topics

Editor's Picks