Economy

Impact of property policies on China's economy

(China Daily)
Updated: 2010-07-22 10:24

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.

Related readings:  Experts see soft landing after hard measures  Property still scrutinized  No property taxes for now: Official  Housing policy cools related industries

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.