Workers clean the windows of an apartment block at a residential area in Beijing May 9 2012.PETAR KUJUNDZIC
When will China's home-buying restrictions ease?
Despite the slowing in the property market which has been directly linked to the country's cooling economy, the answer seems to be no time soon.
The release of last month's property price survey on Friday morning showed prices are still falling – down year-on-year in 46 of 70 cities in the monthly survey. Homes in Wenzhou, scene of a local debt crisis last fall, fell hardest, down 12.3 per cent from this time last year. Homes in top-tier cities Beijing and Shanghai were also cheaper, down 1.0 and 1.3 per cent respectively from last year.
At the same time, following a wave of dismal numbers on imports, exports and industrial production last week, economists around the globe are busy revising their forecasts for China's growth this year. Goldman Sachs cut its forecast for the year to 8.1 per cent from 8.6; Moody's Analytics are also in the process of revising their previous forecast of 8.2 per cent for the year.
Still, Chinese officials this week pledged to continue the home purchasing restrictions which have brought soaring property prices back down to earth in recent months. The real estate market made up about 13 per cent of GDP last year. Property market regulations vary from city to city but generally limit purchases to those with permanent residency permission, or hukou, for the city, as well as restricting purchases of multiple properties.
"We will keep our severe crackdown against investment and speculative housing demand," Zhang Xiaohong, vice head of property market supervision at the Ministry of Housing, was quoted as saying to news portal www.china.com.cn. "We must firmly stick to the tightening measures, further strengthen our achieved results and drive home prices back to a reasonable level."
At stake is the role of the housing market in China's economy. The country's immature financial markets and notoriously volatile stock market mean that real estate is seen as the best and safest investment around, a mentality that was feeding speculation and the risk of a property bubble.
That bubble is now deflating, although some economists say the market is still overvalued and that falling property prices will not constitute the main drag on GDP this year.
"You can make a pretty strong case that it's overvalued, the property market, so I personally don't think there will be any reversal…I think they'll hold the line," said Alaistair Chan, China economist with Moody's Analytics, who said this year's forecast for GDP growth may end up around 8 per cent from their previous prediction of 8.2 per cent.
Just as important for China's government, though, is that restricting property prices to try to keep them within reach of the rising middle class is seen as key to preserving political stability. For an authoritarian regime obsessed with maintaining a "harmonious society," this has been a relatively dramatic year, with labour protests, self-immolations by Tibetan activists, continuing food inflation and a rare and colourful political scandal involving the murder of a British businessman that felled one of China's most popular politicians – all ahead of an expected transfer of power at the top that is supposed to begin with the Communist Party's national congress in October.
As a result, some property developers are settling in with what they have, and downgrading any ambitions of big acquisitions.
"In the rest of this year till early next year, there will be no big changes in China's property policies," Freddy Lee, the chief executive of Chinese property developer Shui On Land, told Reuters this week. Though he said he expected home buying to pick up later this year, prices are likely to continue to fall 5 to 10 per cent before year's end. "Currently we don't have any plan to buy land, as we have enough stock in hand."