Opinion

Affordable homes best solution for property market

By Li Xiang (China Daily)
Updated: 2010-05-28 10:32

The A-share market is apparently "between scenarios". Last week, it plunged after tough action against property speculation - first by the central government in Beijing and then followed by State-owned banks and key local governments.

This week, the market seems to have picked up as it appears that government policies won't get any tougher in the next couple of weeks.

Thus the rally on Monday, led by property shares amid investors' expectations that tougher moves by the government - such as further dampening of real estate transactions and raising interest rates - will be slower than had been expected over the past few weeks, and won't happen at least until the eurozone gets stabilized and no more crises appear.

Although talk of a possible property tax delay was denied by the country's top economic planner, the National Development and Reform Commission (NDRC), there is convincing evidence that top-level officials do realize the potential side effects of their ongoing campaign.

Their original intention was to cool down runaway house prices, not to bring transactions to a virtual halt; and to help the economy avoid an imminent asset bubble, not to let it fall short of its yearly growth target.

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Local governments in Guangzhou and Chongqing have already adopted less stringent measures. Unlike their counterparts in Beijing and Shanghai, they are not talking about, for example, imposing property taxes or a ban on the purchase of third homes.

The central government has certainly heard the criticism that, instead of deterring cash-rich property speculators, some of the current policies, such as higher mortgage requirements, have only served to temporarily depress real demand from average households.

However, officials' milder words do not constitute policies by themselves, even less a clear statement of long-lasting significance. So the "wait-and-see" market still cannot but wait and see amid the continuing volatility of the Shanghai Composite Index at a low level.

Uncertainties will keep haunting the market until central government officials announce something like, "OK, this is the whole bundle of our property market policies and it will remain so for a minimum of the next two years". That would be the equivalent of announcing the "soft landing" (as opposed to a hard crash) of the former inflationary urban housing market.

Unfortunately, such an announcement will take some time as policymakers need to assess whether their policies were too harsh or lenient in a stress test involving at least 50 to 60 of the largest cities and millions of households, as well as in real market conditions.

The real hope for the property market, as many analysts say, lies in the construction of more affordable and subsidized housing, to be sold to low-income families.

This can keep the property industry's entire value chain alive - creating jobs and generating new demand for upstream and downstream industries and services, while sustaining social harmony.

The central government has pledged to build as many as 5.8 million affordable, low-rent homes for low-income families and to renovate 1.2 million rural homes this year, according to the Ministry of Housing and Urban-Rural Development.

The total investment for the whole project is expected to reach 430 billion yuan, more than 10 percent of the stimulus package following the global financial crisis in 2008.

If the price woes in the property market are to blame for the recent sharp fall in the stock market, then the affordable housing project should be able to offset some of the negative impact of previous real estate curbs.

It would be a much more useful kind of help for investors than simply shutting down the market.