Local boosts for properties can backfire

Moreover, the slowing economy and the widespread expectation of a new "economic norm" of sustained slower growth constitute the biggest hurdle for property sales. Unlike some years ago, when people talked about how much more the prices of their properties might rise, people are now discussing whether the market downturn spells a real estate Armageddon that will trigger a full-blown economic crisis in China.

The changing economic fundamentals have changed people's general expectations for the real estate sector. It is similar to what happened in 2008, when the global financial crisis battered the Chinese economy and suddenly demand for real estate seemed frozen and sales slumped.

Real estate prices decline for a second consecutive month

Realty price swings may pose short-term risks

During the global financial crisis, the central government took jaw-dropping stimulus measures to bail out the national economy, which also saved the real estate sector.

This time, however, the central government will not repeat what it did during the 2008 crisis and launch massive stimulus programs, for fear of stoking liquidity and inflation. Developers, therefore, will have to rely on local policies for support in order to survive their current woes.

Local governments, meanwhile, have no other option but to help revitalize the market, since the real estate sector and related industries are the main contributors to local revenues.

The question is, will such local policy boosts bail out the developers this time?

Media reports show that some local governments plan to encourage people to buy more properties and make the banks cut interest rates for mortgages. Price cuts by developers will also be banned so that there is no chain effect from price cuts in the market.

Such measures, if implemented, are set to play a role in temporarily boosting the local property market. But just as drugs cannot ensure the long-term performance of an athlete, such boosts will not bring prosperity to the real estate market in the long run.

Such planned market intervention is risky. By postponing the inevitable, it affects the normal functioning of the market and will only backfire in the future. If that happens, local governments will have to spend more to clean up the mess.

The author is a senior writer at China Daily.

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