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China's property market hits a stalemate

Xinhua, April 17, 2011

China's property market seems to have reached a stalemate, with buyers waiting for price drops and developers postponing sales. Any development hinges on the government's ability to turn its vision into reality.

The State Council, or China's Cabinet, last week pledged to maintain macro control over the runaway property market.

The government has adopted various measures to curb rising property prices, including restricting residents in 35 major cities from buying second or third homes, higher down payment requirements for mortgages, property taxes in Chongqing and Shanghai, as well as a slew of monetary policies that have raised developers' borrowing costs.

To offer more houses that are affordable for the public, the central government has allocated 103 billion yuan (15.6 billion U.S. dollars) for the construction of 10 million affordable housing units this year.

While the government's policies have eased rising prices in some cities, authorities are pressing for a down-to-earth implementation of the policies.

Complicated picture

The tightening policies have made some noticeable differences.

In Beijing, the average transaction price dropped 26.7 percent from February to March due to the absence of speculative investment, according to the city's property transaction management authorities.

Another factor behind the drop was that transactions had mostly moved from downtown areas to the suburbs, according to dealers from local property companies. Prices of houses in the city center barely changed and prices of resold houses rose slightly, they said.

Seven of 70 medium- and large-sized cites registered a one-percent price increase in February, a traditionally slow season for property sales.

Still, sales tumbled in some cities. In the southern city of Guangzhou, sales of newly built commercial houses dwindled by nearly 40 percent in the first quarter, and in the eastern metropolis of Shanghai sales of primary residential houses fell by almost half.

Apparently, the government is not happy with the situation as in some cities, the price rise has not been checked.

Implementation being tested

To ensure that the government's policies are strictly enforced and emerging problems are handled properly, the Cabinet has sent eight inspection teams, all headed by high-profile officials, to 16 provincial level regions to supervise the implementation of the policies since the beginning of April.

At the top of the inspectors' agenda is finding answers to following questions: Whether the housing control target was made after social surveys? Where did the capital for low-income housing construction come from? How can land supply be in place for planned construction?

Following the announcement of tightening policies, worries surfaced over whether local governments set reasonable and practical targets and were able to put them into practice.

Chen Guoqiang, a real estate expert at Peking University, said local governments should take a variety of factors into consideration before setting local targets. Growth of local GDP and average per capita income should not be considered lightly.

Another concern is how local governments can reform fiscal systems to become less dependent on land revenue, said Zhu Zhongyi, Vice Secretary-General of the China Real Estate Association.

"The central government has regarded urban housing problems as having already affected the country's overall progress. Governments at different levels are required to spare no effort in keeping housing prices on the right track," said Yun Xiaosu, Vice Minister of Land and Resources.