Property market 'too big to fail'?

By Hu Yuanyuan (China Daily) Updated: 2014-05-29 06:52

Economists predict home purchase restrictions will be eased as the government seeks to boost growth, Hu Yuanyuan reports

Chinese consumers are accustomed to all types of government measures to restrain rising home prices. Now it's time for a probable turnaround.

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Property deals in Hangzhou in East China's Zhejiang province are set to terminate if the actual transaction price is 15 percent lower than that developers recorded with the municipal government.

Hangzhou is the provincial capital and the first city in the country to set a "bottom line" for a new - home transaction price. But the city government later clarified that it was not setting a "bottom line" for home price drops; instead, it means to regulate the pricing behaviors of developers.

In April, the city had the country's biggest month-on-month price drop, 0.7 of a percentage point, according to the National Bureau of Statistics.

China's property sector is too big to fail. It's a key growth driver, contributing 16 percent of gross domestic product and 25 percent of fixed-asset investment. It has considerable spillover to more than 60 industries.

"Considering the importance of the property sector to China's economy, we think the government will introduce more loosening measures to mitigate the impact of a housing-market slowdown," said Stephen Green, economist with Standard Chartered Plc.

Several city governments have announced loosening measures, including relaxation of purchase restrictions, lower down payment requirements and easier access to local bank mortgages.

"We expect more lower-tier cities to follow suit, which will help prevent local markets from collapsing," said Green.

The central bank has also asked banks to speed up mortgage lending, set mortgage rates at reasonable levels and do more to meet first-home buyers' mortgage requirements.

"The change of relevant real estate policy is usually used as a shot of adrenaline for the overall economy. But will that always work?" said Mao Daqing, vice-president of China Vanke Co Ltd, the country's largest property developer by market value.