Govt policies to boost housing sales, not prices
Updated: 2008-10-22 06:56
By Raymond Ho(HK Edition)
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A new set of housing policies finally came to light last Friday, but not quite in the shape property developers had looked forward to.
Among a number of likely measures to boost China's economy, the central government has announced various housing market incentives, including reducing fees and VAT rates for housing transactions and easing mortgage rules on second homes.
Most importantly of all is the pledge to increase the affordable housing supply for low-income residents, as part of the national urbanization progress to provide shelter for people who move to cities from rural areas.
The central government is taking a two-tiered approach to fixing the current faults in the housing market. By increasing the low-cost housing supply, the low-income working class is entitled to affordable accommodations.
For a long time, local governments were not keen on investing in low-cost housing for the low-income groups. Though such a system is in place in a number of cities, demand far outstrips supply.
And the middle-class is also encouraged to own their properties to improve their living standards.
Though certain incentives were given by local authorities beginning last month to ease developers' short-term cashflow, we should not misconceive that the new move is anything to prop home prices up, and certainly not to guarantee the profit margin of home sellers.
Indeed, policymakers would like to see the sales volume pick up in the months ahead and prices continue to go down, so more people can afford to buy new homes, and to give the economy a boost.
Soaring home prices in the past two years, partly fueled by speculation, have created affordability and social division problems, touching the nerve of the central government. According to numerous government economists, major cities should still see 10 to 20 percent more room for price cuts, as home prices are far beyond the reach of the majority.
But facing the current economic slowdown, the new policy is meant to stimulate housing sales without undoing previous efforts to deflate the housing bubble.
The author is deputy managing director of Vigers Asia Pacific Holdings.
(HK Edition 10/22/2008 page3)