HONGKONG: China’s real estate cold turkey risks withdrawal. The economy is cooling, the trade war is escalating, yet the country’s capital Beijing refuses to spice housing markets.
Introducing stimulus without touching a field that eats around 15 percent of China’s GDP won’t be a walk in the park. That officials are doing their best suggests the state is willing to bear unprecedented pain to keep property houses down.
The prospect of Beijing easing home purchase restrictions to push growth has tormented markets for months. During a growth scare in the start of 2019 and late last year, it appeared they might, leading many local governments to silently loosen measures.
Then following a strong first-quarter growth, a Politburo meeting readout put an often repeated slogan that “houses are for living, not speculating,” hinting that policy relaxation was not close.
Another Politburo meeting in late July vowed not to use housing as a tool for short-term stimulus, even though China’s real estate props up demand for various items including cement, glass, toilets, furniture, and loans.
Officials may be unwilling to let property restrictions loose due to the fact that home prices have disengaged from the larger economy. GDP growth reduced to 6.2 percent in the second quarter of 2019, compared to 6.7 percent growth in the same period of 2018.
Yet average new property prices keep increasing by around 10 percent year-on-year, even as property sales have been left stagnant.
Should the Chinese administration loosen purchase restrictions, prices would almost certainly hike, which could inflate bubbles. Some experts also worry higher mortgage payments would end up dominating other purchases, such as automobiles.
Some companies are already indicating signs of squeeze. For instance, China Evergranded Group reported on Wednesday that its first-half net profit for 2019 dropped by almost half compared to the same period in 2018.
Land sales accounted for 28 percent of their overall fiscal revenue last year, according to Moody’s Investors Service. They went down by almost 10 percent in the first quarter, just as income is being taken away by tax cuts intended to invigorate business activity.
That could in turn weaken the fiscal ability to spark, and as well pay off about 20 trillion yuan in recognized debt. But that’s a risk Beijing appears willing to take.