Editor's note: Following the implementation of government policies designed to cool the over-heated property market earlier this year, housing prices in major cities have not seen significant reductions, despite the fact that transaction volume has declined. Yet growing public concern over the economic slow down has triggered a national debate on whether policies should be relaxed, where property prices are headed and how these issues may impact both the nation's economy and economic policymaking. Property developers together with Ren Zhiqiang, chairman of the influential Beijing-based Huayuan Property, warn that a slide in housing prices may come at the cost of economic growth, while some economists predict a major correction in property pricing may come in the next few quarters.
Yuan Gangming, an economist with the Chinese Academy of Social Sciences
The government's current method of home price regulation is very dangerous. Previously, each time, the government tightening policy was a cave in to the country's big developers. Those measures failed to rein in soaring prices and, more seriously, prices went even higher after each new round of regulatory moves.
This time the authorities have adopted a more flexible method, which aims to stabilize prices when further price rises could lead to implosion of the market. But stabilization of home prices does not necessarily mean price corrections. So the result of regulations would probably be high but stable property prices, which are exactly what developers want to see.
What will happen next? It depends on the wisdom of the country's macroeconomic regulators. It is also a power struggle between policymakers and developers. Premier Wen Jiabao has said that the government would make housing prices reasonable and acceptable to the public. But the developers are trying to hold prices at a high level despite government warnings and tightening policies. If this situation continues, the government has no choice but to either compromise or adopt even tougher measures.
Ren Zhiqiang, chairman of Beijing-based Huayuan Property
I am concerned that China is at risk of more serious economic slowdown than people have anticipated. From the perspective of the property sector, we are likely to see the pace of developers' input into new projects drop rapidly in the coming months. Many property developers have decided to stop investing in new projects, and this is actually a dangerous signal for the nation's overall investment. Annual growth of fixed-asset investments may drop significantly and the statistics so far have not reflected developers' mood following the government's tightening measures.
Therefore, if the government does not relax its clampdown measures, I expect China's economic growth might fall below 8 percent sometime this year due to slumping investment.
Chen Xingdong, chief economist of BNP Paribas Peregrine Securities Limited
At present, only a few cities have implemented their property tightening policies, showing that local governments have failed to play a positive role in the central government's property regulation policy. Since several rounds of policies in the past did not achieve the results desired by the public, the government may lose the trust of the people if the property regulation policies this time still don't work. The ideal situation would be for home prices to decline to affordable levels as soon as possible and for the authorities to adjust land, lending and taxation policies to get the property market onto a normal track of development.
To prevent excessive damage to the Chinese economy by property regulation policies, some other regulatory policies, including cleaning up the local financial platform and implementing energy conservation and emission reduction measures, can be temporarily relaxed.
Tao Dong, chief Asia economist at Credit Suisse
China's policy has entered a waiting period and will not see further tightening. Most policies, however, cannot be loosened either. China's monetary policy, to some extent, depends on inflationary trends, which may become more serious after July due to rising labor costs and food prices. Any interest rate hike may be delayed till the fourth quarter.
Transactions in the real estate sector are slowing down, but prices have not seen major declines. This is the first stage of adjustment. In the fourth quarter, the real estate adjustment would enter a second stage in which the supply of new homes will surge while interest rates go up. Some developers may suffer from cash flow problems and home prices will drop together with transaction volume.
Ha Jiming, chief economist at China International Capital Corp
Real estate prices in some cities are high, but prices are reasonable in some second- and third-tier cities. The monthly mortgage to household income ratio in these cities is healthy. China's urbanization will create opportunities for the property industry in the future, particularly in China's central and western areas.
The stringent policies placed on the property sector will continue in the short term. The government may relax the policies if property prices continue to ease.
To what extent will the price decline be appropriate? A reasonable level would be one that can both make the public happy and keep the country's financial system from being unduly affected. Banks generally think a 30 percent decline is acceptable, but that's the bottom-line for banks, and would not be acceptable if we take market confidence and the sector's potential impact on the overall economy into consideration.
