Developers urged to cut housing prices

(Agencies)
Updated: 2009-01-07 18:47

China's policy makers urged real estate developers to cut home prices and promised to expand public housing projects, as the country tries to boost housing sales and the construction industry to support the weakening economy and avert further job losses.

Prices are "still not affordable for ordinary people," four government agencies said in a joint statement. "The key to revitalizing the real estate market is to set reasonable prices," the country's housing ministry, finance ministry, central bank and the National Development and Reform Commission said.

The statement display the government's continued focus on boosting the housing market, after it announced measures to aid home buyers in October and mid-December. At a news briefing Tuesday, officials said the government will build more government-subsidized and affordable housing.

The downturn in the housing market has had broad ramifications in China as builders' demand for steel, copper and other raw materials shrinks, and consumers buy fewer appliances and electronics. Official forecasts said China's economic growth will ease to about 8% this year, but some private economists worry growth could be much weaker if the housing market doesn't recover.

"The healthy growth of the property sector is very important for the economy's healthy growth, for fostering consumption and for improving people's lives," Huo Yingli, deputy director of the central bank's financial market department, said at the briefing. Government data show the construction industry employs around 9% of the urban work force.

Housing sales in the January-November period were down 20.6% from a year earlier, and prices have been falling at an increasingly rapid rate as developers accelerated price cuts beginning in mid-October. Prices in November were down 0.5% from October, compared with a fall of 0.1% in August.

The government on Tuesday praised such price cuts for having had some effect in boosting sales. But officials worry that too much of China's population is priced out of the commercial housing market. So the government will add 1.3 million affordable housing units each year from this year through 2011, according to Tuesday's statement.

However, there are concerns that the increase in public housing will divert buyers from commercial housing projects. Qi Ji, vice minister of housing and urban-rural construction, said at the briefing that the government's projects target the poor and won't hurt the commercial housing property market.

Joan Wang, senior manager of the Research & Consultancy department of Savills Property Services (Beijing) Co., said housing sales are unlikely to pick up quickly because of the dimming economic outlook, unless the government introduces measures such as allowing buyers to deduct their home purchases from income tax.

But a finance ministry official signaled that new tax incentives are unlikely in the near term. The government has already cut mortgage rates and transaction taxes, and new measures announced last month will exempt more people from paying property-sales taxes.

Wang Xiaohua, a deputy director of the tax department of the ministry of finance, said the government will examine the effectiveness of moves in 2008 before taking any further action.

Analysts say the government's measures suggest it is more focused on boosting housing sales and construction activity rather than supporting prices and developers directly. But the government is also looking for ways to ease the financing squeeze faced by many property developers.

The State Council announced a trial program last month that would let developers form real-estate investment trusts to raise funds. Huo of the central bank said government agencies are discussing a plan to launch the trial and will send a proposal to the State Council after discussions. She didn't provide a time frame.