Economy

Real estate sales witness big fall

(China Daily/Xinhua)
Updated: 2010-05-03 10:37

Tough property measures will 'benefit economy in long term'

BEIJING - The booming property market suddenly cooled down in April - in home sales, at least - after a range of government measures aimed at curbing runaway prices.

However, the measures are also fueling concerns that growth could slow in the world's third largest economy, already beset by export uncertainties.

Zuo Xiaolei, chief economist at China Galaxy Securities, said property bubbles may be the major risk for the economy this year.

"The government has to move before the bubble bursts and destroys the overall economy," she said.

In April, the central government introduced a raft of tough measures, including more stringent down-payment requirements, higher loan rates, a ban on lending for third home purchases and tighter scrutiny of developers' financing.

Zuo said the measures sent a clear signal of the government's determination to check soaring property prices, which surged a record 11.7 percent in March, prompting complaints and heightening concerns about asset bubbles.

Hit by the measures, property sales in major cities tumbled. Data from the China Index Research Institute showed that Hangzhou, capital of East China's Zhejiang province, saw a 72.55 percent month-on-month plunge in sales during the week ending April 25. Beijing witnessed a 45 percent fall while in Shanghai, the drop was 38 percent.

The government response has helped stabilize home prices, but whether the measures will deflate the bubble depends on implementation, Zuo said.

Zhang Hanya, a senior researcher with the investment institution of the National Development and Reform Commission, echoed the view, saying local governments rolling out measures tailored to their own situation is the key.

Real estate, as a pillar industry, affects 60 other sectors including cement, steel and home appliances.

The property sector accounts for 18 percent of fixed-asset investment, which, in turn, contributes about 57.9 percent of the nation's gross domestic product.

The close inter-relationship has prompted fears any tightening could hinder economic growth.

The stock market has plunged in reaction to the recent measures.

The benchmark Shanghai Composite Index fell for the sixth consecutive day on Friday, led by property, banking and energy shares.

Analysts attribute the decline to concerns that slower economic growth could hurt domestic consumption.

But Zuo dismissed such fears, saying "massive building of low-cost housing and small apartments, together with renovation of shanty houses, will create demand for materials like steel and cement.

"Excessive growth will only strengthen inflation expectations and add to the pressure on policy makers to keep inflation under control."

The economy grew by a better-than-expected 11.9 percent year on year in the first quarter, with the consumer price index, the key gauge of inflation, up 2.7 percent year on year in February, slightly below the 3-percent ceiling set by the central government this year.

Tighter curbs on property market lending have helped the development of the property market and the health of bank assets, Zuo added.

But Zhang Hanya was not as optimistic, pointing out decreased sales of land and apartments are likely impairing local economies' revenues, which rely heavily on income from land transfers and taxes on property developers.

Excessive tightening measures will hold developers back from investing, which could in turn dampen the whole economy, he said.

"The government is pretty clear the fast rebound in the economy has been largely buoyed by the property sector," said Yuan Gangming, a research fellow with Beijing-based Tsinghua University.

That explains why the government has hesitated in taking concrete measures to curb the precipitous rise of housing prices, he said.

The government must tackle the property bubble for the sake of economic health, even at the expense of an economic slowdown, according to Yuan.

The new policies may squeeze some bubbles, which will be beneficial for the economy in the long run, Yuan said.

The government has targeted 8 percent economic growth this year.