Business / Industries

Hard landing unlikely for China's property market

(Xinhua) Updated: 2014-08-09 14:35

Easing under way?

Concerned about the slowdown's impact on local growth, land sale revenue and social stability, local governments have started to ease home purchase restrictions set years ago as a tool to temper record prices.

Earlier this week, Foshan city in South China's economic hub of Guangdong became the latest region to lift home purchase restrictions. So far, more than 20 regions, mostly second- and third-tier cities where inventories are high, have lifted or eased their grip.

Unlike previous easing measures, which usually led to a rebound in the market, the loosening seems to have had little impact, however.

Both home prices and transactions dropped in Haikou, capital of Hainan, even after the city lifted its purchase ban in July. The "house-for-hukou" policy adopted by the city in June has so far attracted only 18 households to register their hukou, or permanent residential permit, in the city.

This underlines serious oversupply problems in smaller cities, which will suffer bankruptcies and credit crises if the oversupply is not properly dealt with, Li said.

The number of residential homes for sale has reached 134,000 in the downtown of Hangzhou in the East China's Zhejiang province, which analysts believe will take at least 20 months to destock given the current slack sales.

"The ban-lifting is not a lifesaver," Li explained. "Recovery still relies on credit supply. As long as the country maintains a tight control on credit, a large price rebound is unlikely."

Chen Huai, a researcher at the Chinese Academy of Social Sciences, said there is no need to maintain purchase limits in cities with oversupply.

Opening second-tier and third-tier cities to immigration is in line with China's urbanization drive, so it makes sense for these bans to be removed, Chen said, adding that more cities will follow suit in the future.

Impacts on economy

The property downturn has come amid subdued strength in the broader economy, challenging policymakers as the housing market has been a key growth engine.

While admitting the downturn has weighed on investment and downstream sectors such as steel and cement, Shen said that the government's measures, including increasing investment in infrastructure and affordable housing, as well as shantytown renovations, will help offset the impact.

Instead of introducing aggressive easing measures, the government will more likely rely on fine-tuning to put the sector back on track, analysts believe.

Chen said that tailoring macro-policies to deal with possible economic risks, pushing urbanization, establishing a housing security net, and advancing reforms in land and financial sectors, which will indirectly impact the property sector, will be top government tasks in the short run.

According to Zhu, the current market slowdown provides an opportunity for the government to accelerate property market reforms, including establishing a real estate registration system and a system to record individuals' housing ownership. Many believe these will pave the way for a basket of property-related taxes.

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