Avoid a housing slump

With a slew of forceful government efforts to boost the sluggish domestic housing market, Chinese policymakers have made clear their determination to keep the property sector running as a major driver of the national economy.

On Wednesday, the Ministry of Finance and the central bank announced not only a cut in property transaction taxes but also a reduction of down payment and mortgage rates.

Such a package of supportive policies is quite necessary to stave off a sharp housing slump which can otherwise seriously undermine China's endeavors to navigate through the global financial crisis and economic downturn.

Because of weakening external demand and domestic credit control, the Chinese economy has slipped into single-digit growth in the third quarter for the first time in at least four years. Admittedly, the country's GDP growth, up 9.9 percent year on year during the January-September period, remains remarkable in comparison with other major economies. But the cooling of the national economy after five years of double-digit expansion has already made unemployment a growing concern for Chinese policymakers.

Both to cushion the economy from the impact of a global slowdown and facilitate the change of the growth model toward a more sustainable one, Chinese policymakers have decided to cut the country's dependence on export and rely more on domestic demand for economic growth. And since it takes a lot of time to foster domestic consumption into a major growth engine, the government has to focus on speeding up investment growth.

Under such circumstances, policymakers certainly cannot afford to wait and see plummeting sales turn the real estate sector into a drag on the economy.

Latest statistics show that property prices in China's 70 major cities rose only 3.5 percent year-on-year last month, compared with 5.3 percent in August. The growth rate has slackened for eight consecutive months this year.

As a result, real estate investment is slowing down to hinder fixed-asset investment growth in urban areas and cut domestic demand for steel, cement and furniture at large.

By lowering the cost of home buying, the new measures the central government adopted will surely give a considerable boost to the housing market.

Yet, the ongoing correction is only a natural response to the excessive surge of house prices in recent years and thus unlikely to stop any time soon.

The government should boost real estate investment but refrain from intervening in the adjustment of house prices.

(China Daily 10/24/2008 page8)