• Tue
  • Dec 23, 2014
  • Updated: 12:47pm
CommentInsight & Opinion

Beijing's housing policy challenge

PUBLISHED : Saturday, 23 August, 2014, 2:41am
UPDATED : Saturday, 23 August, 2014, 6:47am

Local government, which depends on revenue from property sales to finance services and infrastructure, has combined in the past with developers to get around policy measures to cool the mainland property market. Now sustained tight credit, a huge oversupply of housing and negative sentiment have combined with administrative moves to rein in soaring prices.

A record number of mainland cities - 64 out of 70 tracked by the National Bureau of Statistics - reported a drop in new home prices last month. Following falls in 55 cities the previous month, this signals a deepening downturn in a market that has been in a correction cycle for some time. More than 30 local governments have loosened home-purchase restrictions in a largely ineffective attempt to stem the slide. Many market players believe these efforts will continue to have only limited effect. Nor do they expect selective easing by monetary authorities including reducing banks' reserve requirement ratios to channel much credit to the property market.

Investors remain reluctant to buy while there is still uncertainty about whether prices have bottomed out. Developers under pressure to reduce inventories and generate more cash flow are facing a challenge in finding a price level that will entice buyers back. This dilemma has been compounded by very tight mortgage pricing, with many banks charging small premiums on the benchmark rate. That said, mortgage approvals have been fast-tracked recently, with some banks offering the benchmark rate or even a small discount.

A further slowdown in housing sales, which also impact on related activity such as manufacturing and retailing, will weigh on an economy only just on track to meet its growth target. With the latest manufacturing data suggesting the momentum of economic recovery may be slowing, market players and local government will be hoping policymakers overcome aversion to risking another bout of housing inflation and yield to pressure for more policy easing. Having reined in a price spiral, Beijing needs to loosen carefully so as not to trigger another.


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Property forms a large part ( about a 14% ) of China's GDP, but most importantly it supports a broad variety of other industries, such as manufacturing, cement, furniture and directly effects consumer spending.
This SCMP article above grossly misstates that there is an ' over supply' in housing. There is in fact a big 'shortage ' of (affordable) housing especially in tier 1 cities like Shanghai and Beijing.
The over supply issue basically exist in tier 3 and 4 cities.
The over and over again ill intended prediction of a property bust in China has never happened ,and probably won't ( in tier 1 cities). This is due to;
1) Huge urbanisation rate, assume 1% per year - it's 14M people per year- into major cities.
2) low household debt, many pay cash or take only 50% loans.
3) huge backlog to clear for affordable public housing( shortage).
4) household formation- many youths, middle class need homes.
5) the need to upgrade to larger more well built homes- as many homes built during Deng's time are sub standard; no proper kitchen , toilets.
6) rising incomes of middle class - supporting larger homes - above 100sqm.
7) China's command and control economy would be able to control the market.
We in HK can just salivate at how well actually China has done for it's own people - achieving a home ownership rate of 90%.
HK is the real failure; when it comes to housing.
Of course we can holler louder here without being arrested, that we do better than China.
The yo yo playing in controlling housing price can’t resolve whatever problem that must bring on the yo yo.
We all know Mainland has adopted Hong Kong’s land for revenue and inevitably eventually must face the music of all its consequences. Hong Kong had some foolish righteous concept adhering to no taxation no representation to avoid taxation so to eliminate representation by locals in governing during early colonial time. Mainland uses land as a easy way to raise revenue. In fact it is a easy way to raise money and profits for everybody. Same can be said of Hong Kong.
Associating with land is the property development upon the land. It is such a mature business that the idea of a property market is set deeply in the culture. News media develops special property section in promoting, analyzing and predicting the market that in fact more in creating a market artificially by the media as well. In the process, the economic value is mostly focused on this artificial market. It is wasteful and socially dilapidating in the process and at the end.
I urge government and people to look for more constructive means to make money. Property as a market is a big killer.


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