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Government to boost property market

By Liu Shanshan (chinadaily.com.cn)
Updated: 2008-10-17 16:05

However, the laissez-faire development of the property market has led to skyrocketing prices, which resulted in many grievances from homebuyers. At one time, the selling price of per square meter for a downtown Shanghai plush apartment was reported at more than 120,000 yuan (US$17.60). The housing price hikes also created run away inflation in 2007.

This led to Beijing putting on the brakes in August 2007 by introducing higher taxes on housing prices, collecting more fees, and imposing 110 percent mortgage rates on second apartments, effectively controlling hoarding and speculation. As a result, housing prices began to decline.

A worker walks past a new apartment building at a construction site in Shanghai, in this July 16, 2008 file photo. [Xinhua]

Waning Property Market

In Shenzhen, China's first special economic zone, housing prices have declined more than 40 percent from its peak last year. Sales in Beijing, Shanghai and all other major cities have reported a substantive drop.

Statistics released by the state media, Xinhua, show the housing sales volume in Beijing during the National Day holiday decreased by 72 percent, compared with the same period last year. This period is traditionally a sales peak time for real estate transactions. Despite the deep price cuts made by property developers, only 69 apartments on average were sold per day during that week.

As the backbone of China's state revenues, the weakening property demand may hit the country's public coffers and fiscal policies as well.

The fall in property sales market will lead to a reduced demand for construction materials like steel, cement and lumber, and at the same time trigger slumps in China's fixed-asset investment sector. Combined with a sharp drop in exports initiated by Wall Street's stock plunge and global financial turmoil, China may face big risks in a slowdown of GDP growth rates and even an economic downturn.

The sluggish property market has also sparked concerns over the country's capital safety, mainly from the banks. There are fears that domestic financial institutions may be caught in the same dilemma as their US counterparts, some of whom went belly up due to the subprime crisis.

Wait-and-see Homebuyers

The 18 Chinese cities used many measures to stimulate their real estate markets: extending the length of time homeowners can pay back mortgages, reducing property taxes of private house owners and canceling restrictions on buying a second home. These policies were a great impetus for Chinese salary earners who took out all their savings to buy a home a year ago, but in the current bleak housing market, more and more potential homebuyers would rather wait and see regardless of those favorable policies.

Many potential buyers believe there is still room for further price adjustments and think it is too risky to buy homes now, given the instability of the global economy. "I will not open my purse until April or May next year, when I believe housing prices may undergo a 30 percent drop," said a Beijing resident surnamed Yu, who wants to buy a home in the Chinese capital.

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