If anxious Beijing homeowners and property developers were looking for signs the city’s housing market would soon reopen, they must have been sadly disappointed by Premier Wen Jiabao’s last address to the press this morning.
For just over a year, most major Chinese cities, including Beijing, have held tight rein over who is allowed to buy property and how often, an effort to crack down on speculators who had sent prices skyrocketing. Beijing apartments, for instance, can now only be purchased by those with a permanent residency certificate for the city; mortgage requirements are more strict and there are also limitations on those who wish to purchase two or more homes.
The measures have had their intended effect, cooling housing prices and slowing sales. But the side effects have been felt by property developers and construction companies, who are now struggling to sell off existing inventory while new projects languish. Other industries, including China’s massive iron and steel companies, are also feeling a pinch, as their products sit unwanted.
But these complaints have thus far not touched the hearts and minds of the Communist Party, which wrapped up its annual National Party Congress in Beijing today with the Premier’s annual meeting with the press. The marathon three-hour session – the last before he retires next year – included what appeared to be strong resolve to keep housing prices at least somewhat within arm’s reach for the average citizen.
“If we develop the housing market blindly, a bubble will emerge in the housing sector. When the bubble bursts, not only the housing market will be affected, it will weigh on the entire Chinese economy,” Mr. Wen said, calling for “reasonable” housing prices that would match people’s incomes, while allowing for construction costs and a reasonable profit. “Clearly current prices are still far away from being reasonable. As such, there is no setback of regulating in the housing sector.”
“We have set the target of providing adequate living space for the people, but this does not mean that each one has to own a home,” said Mr. Wen, who said he felt “deeply distressed” by complaints of high and rising prices. “We will continue to encourage people to rent houses.”
In February, traditionally a busy month for real estate sales around the Chinese New Year festivities, home prices saw their largest decline in at least 19 months, according to a report by SouFun, China’s largest real estate portal.
Still, the decline is hardly a freefall, just 0.3 per cent over the previous month. Residential prices fell in 72 of 100 cities tracked by the company.
“For the property sector and for overall fixed investment, on-the-ground evidence in Jan-Feb has suggested (1) property sales were very weak; (2) construction activity was slow; (3) demand for construction materials and machinery was lacklustre,” wrote economist Wang Tao at UBS Securities earlier this week. Her research team attributed an unexpected rebound of 5-per-cent growth in property starts last month as a combination of government-approved social housing projects and optimism from local governments and developers that restrictions might be soon lifted.
“While the central government has continued to take a cautious approach to property policy easing, the robust starts and the return of the warm weather should see a pickup in construction activity in the coming months,” Ms. Wang wrote.