Beijing switches policy to stable, long-term growth

PUBLISHED : Wednesday, 24 June, 2009, 12:00am
UPDATED : Wednesday, 24 June, 2009, 12:00am

The central government has changed tack on measures to stimulate the property market and is now targeting sustainable and stable longer-term growth rather than a short-term boost to demand.

Behind the policy change, say analysts, lies concerns over the dangers of a possible price bubble emerging, although the situation is unlikely to warrant the reintroduction of measures to clamp down on demand and arrest any further rise in prices.

Official figures from the National Development and Reform Commission show that average housing prices in cities such as Beijing, Shanghai, Guangzhou and Shenzhen rose between 0.4 per cent and 5.68 per cent since the beginning of the year.

But sales data monitored by frontline property agencies indicate much faster growth.

The mainland's largest real estate broker, E-House China, said in a report released two weeks ago that average home prices in the inner-ring area of Shanghai rose more than 30 per cent in the first five months.

Housing prices in Beijing, Guangzhou and Shenzhen had also jumped between 10 and 15 per cent from last year, property agencies said.

In response to this resurgent demand, People's Bank of China officials in Beijing and Shanghai reiterated warnings last month that banks must strictly follow its requirement that second-home buyers should make a minimum 40 per cent down payment and pay mortgage interest rates of 1.1 times the benchmark lending rate.

On June 11, the Guangzhou government introduced six measures to curb rapid price appreciation by improving market information transparency, stabilising land prices through regulating idle land, and increasing land supply.

It was the second move against rising prices made by the government, which last month urged developers not to raise prices aggressively.

'The six rules are just lip service. But they do provide a clear signal that the government is watching the market closely,' said Nicole Wong, the head of China and Hong Kong property research at investment bank CLSA.

The central government clearly had property on its watch list, said Ms Wong, as evidenced by its recent reiteration of plans to increase the supply of social-security housing, to actively study the adoption of a property tax this year, and to lower capital requirements for residential developments. The announcements suggested that the government was taking pre-emptive measures or verbal warnings to prevent the property market from overheating, she said.

The latest policy moves and plans come in contrast to the stimulatory tone of policy launched over the last 12 months, including tax rebates for buyers, a reduction in deed taxes and business taxes for property transactions, and the 'carrot' of acquiring residency rights in urban areas with home purchases - all of which were aimed at stimulating housing demand.

Nevertheless, analysts believe it is too early to worry about tightening policies.

The latest Guangzhou announcements were nothing more than 'showing a stance' and it was unlikely they would be followed through with concrete action, said Nomura International senior property analyst Lee Wee Liat.

'The bottom line is that without continued recovery in the property market, it will be difficult to pull the Chinese economy out of the global recession,' Mr Lee said.

Wang Qing, Morgan Stanley chief economist for Greater China, agreed.

'Property sector recovery offers hope that private, market-based investment and its attendant positive impact on other activity will be able to offset the eventual phasing-out of policy stimulus, helping the economy to sustain organic growth,' Mr Wang said.

Liu Ligang, the chief economist for China at Banco Bilbao Vizcaya Argentaria, believed that price increases of more than 20 per cent were exceptional cases that did not reflect overall market conditions and therefore worries that a property price bubble was developing were not justified.