Housing busts can take economies down with them, as the US in the late 2000s, Japan two decades ago and now parts of Europe, can attest. Beijing, worried about the mainland’s slowing economy, has again turned to the troubled property sector to stabilise growth. Measures have worked before and those announced last Monday to stimulate demand aim to replicate the successes. The stock market there and in Hong Kong have given a show of confidence with share prices soaring, but the focus should be less on short-term gains than more forcefully pushing far-reaching economic reforms.
Property market can direct itself
With homeowners and local governments in mind, the People’s Bank of China cut the down payment required to buy a second property to 40 per cent from between 60 and 70 per cent. In tandem, the Ministry of Finance announced people selling a property would be exempt from business taxes if they had owned it for two years, down from the previous five years. Those moves support the real estate industry, hit by falling prices, a huge oversupply and negative sentiment. They also offer hope for heavily indebted local governments, dependent on land sales for revenue, but experiencing sharp declines in the number of parcels allotted for new projects.
The housing market accounts for about 15 per cent of the economy and its decline has increasingly weighed on growth. GDP, 7.5 per cent in 2014, is forecast to be just 7 per cent this year. Economists have warned that continued weakness will lead to the target being missed and there is good cause for concern given the sluggish activity recorded of late in sectors from steel to concrete to glass-making. The threat of deflation also has to be avoided.
Implementing a significant relaxation of lending is understandable given the prior experience of countries hit by housing crises. But easing measures since last November have had a limited impact on the property sector. Enticing investors will be difficult with no clear sign yet that values have bottomed out and developers unsure about price levels. There is no certainty of anticipated demand.
Authorities were able to cool a hot property market and have to be careful not to create another bubble. The new measures will help stimulate interest in the sector, but cannot be counted on for a significant impact. The market would be best left to find its own direction. Putting energies into pushing ahead with reforming the economy will yield better results.
Source From: South China Morning Post
This article appeared in the South China Morning Post print edition as Property market can direct itself
