• Sun
  • Dec 21, 2014
  • Updated: 11:06am
CommentInsight & Opinion

Property slump will test Beijing

PUBLISHED : Monday, 19 May, 2014, 2:32am
UPDATED : Monday, 19 May, 2014, 9:39am

Among soft economic growth figures released in Beijing last week one weighed heavily on the others - property. Officials reacted quickly. Within hours it was revealed that they had already addressed a deepening contraction in real-estate transactions. The central bank urged major lenders to speed up mortgage loans, with priority for first-home buyers.

In the first four months of the year sales dropped 6.9 per cent in volume and 7.8 per cent in value year on year as a downward spiral accelerated. A slump in real-estate investment growth, the main driver of the fixed asset spending that underpins China's economy, is reflected in other data because it affects dozens of industries related to construction and home-making. For example, industrial production growth edged down to 8.7 per cent year on year from 8.8 per cent in March. Retail sales growth eased to 11.9 per cent from 12.2 per cent.

The central bank's move should help reduce massive inventories of unsold homes. But China's property market remains headed for correction, with implications for a shadow banking system that has financed it and heavily indebted local governments. That poses sensitive policy questions for Beijing, which will come under increasing pressure, especially from provincial and local areas most affected by chronic oversupply of homes, to relax controls on property investment and introduce short-term stimulus measures.

Beijing should not cave in to it too easily. The leadership can live with a GDP growth rate as low as 7 per cent. It's headed that way thanks to softness in export markets, but signs that developed economies are picking up steam herald the prospect of a recovery in trade that could easily push economic growth back to the 8 per cent range. China should keep investing in fixed assets, but target that investment in infrastructure for future growth, such as health services, education, ports, airports, highways and subways.

Further weakness in the property market will test Beijing's resolve. It should be stiffened by President Xi Jinping's recent call to remain "cool-headed" and adapt to the "new normal" in growth. This is not the time to falter. It is only when the economy has lost momentum that tough restructuring decisions are politically palatable. If the Chinese authorities bite the bullet now on restructuring to achieve a healthier balance of growth in the economy, the immediate fallout might be painful, but longer term the result will be good for China.


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This article is now closed to comments

When property experiences a decline in price or sale volume, we often say there is a slump in the property. It has an implication property business has turned sour for everyone and the entire society. Slump is hardly similarly being employed for any decline in gold or food. The favorite slump description in association with property is uniquely manifested in both Hong Kong and mainland China. They all presuming a prosperous and inclining property market is unquestionably good and should be unconditionally embarrassed.
It shouldn’t be a surprise why both places share the same perspective since mainland China has adopted Hong Kong’s property development wholesale since opening up of its economy that government’s revenue rides on the back from selling land for property development. The grave consequences it causes are fully witnessed in Hong Kong.
Mainland China must not relax from its new policy and steer away dependency on property for revenue. Economy can’t be diversified and moves forward when everyone is investing in property. Such a property oriented economy is like a cancer that as time goes by bigger and deadly it grows.
More, implement a capital gain tax to stop property speculation. Most of all create more rentals to accommodate the young population. Millions of newly college graduates flooding not only in job market but in property market for home purchase. This frog-leap by young people has been leading continues pressure on banks and property sector. The demand for housing helped property speculation as the favorite game in every town in China.
It's time for all of us to stop using the word slump to relate property to save our economy.


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