China to stand firm on property controls

China is not likely to loosen the reins on its property sector soon despite expectations for policy easing, analysts said after central authorities recently dampened hopes for let-up of controls.

The government remains wary of a real estate bubble and has more incentive to counter the economic slowdown than to stimulate property investment, according to government advisors and observers.

The Ministry of Housing and Urban-Rural Development (MOHURD) on Tuesday reaffirmed that it will stick with its property cooling measures. It also vowed to instantly remedy improper policies at the local level.

The announcement came after many cities attempted to ease property regulations in recent months, fueling widespread predictions of loosening controls nationwide.

More than 30 cities have implemented easing measures, such as subsidizing purchases of refurbished houses and allowing first-time home buyers to borrow more from the public housing fund since the second half of 2011, data from the Beijing-based Centaline Property showed.

“The ministry’s announcement signals that cooling the property sector will be a mid- and long-term policy,” said Yi Xianrong, a finance researcher with the Chinese Academy of Social Sciences, a government think tank.

“It actually indicates the direction of real estate policies for the next set of government leaders,” Yi said.

A leadership change is expected in China later this year, when the Communist Party of China (CPC) will hold its 18th National Congress.

Market expectations for slackened regulations were mainly based on the fact that China’s economy has been under increasing downside pressure, while property investment has fueled the country’s economic engine.

China’s gross domestic output increased 8.1 percent year on year in the first quarter of 2012, the slowest rate in nearly three years, while the European sovereign debt crisis continues to threaten growth.

Real estate development accounts for more than a fifth of China’s fixed-asset investment, making it a major driver of economic expansion.

“There is enough room for other tools to stabilize growth. There is no need to resort to the property sector,” Xuan Yu, a researcher with the China Center for Economic Research at Peking University, wrote in an article published Wednesday.

To support the slowing economy, China’s central bank on Thursday cut benchmark lending and deposit interest rates by 25 basis points, the first rate cut since late 2008.

In recent months, the government has tried to boost investment by opening the way for more private capital to enter state-dominated industries and approving more industrial projects.

It has also offered subsidies for purchases of energy-saving electrical home appliances in an effort to stimulate consumption.

China should give more priority to maintaining growth and at the same time implement property controls rigorously, China’s cabinet said last month.

Yi said he opposes the view that property controls contradict the government’s focus on maintaining growth, saying that the purpose of the controls is to rid the property market of speculation.

China started to tighten regulations for the property sector in 2010 to cool down the runaway market. The government implemented differentiated credit and tax policies, restricted purchases of second or third homes in some cities and launched massive subsidized housing projects for low-income residents.

New home price indices in 10 major Chinese cities fell at an average rate of 3.22 percent in May, a faster drop than in April, figures from the China Index Academy show.

While home buyers have been somewhat relieved to see prices moving downward, dwindling revenues from property taxes and land sales to developers have unsettled local governments.

Despite holding on to the property controls, the central government has been under growing pressure to adjust the policies, said Niu Fengrui, a policy advisor to the ministry.

“The ministry’s announcement on Tuesday is a likely hint that the central government does not want to see more cities come up with easing measures,” Niu said.

However, he said the local governments’ actions are “understandable,” adding that they have no alternative income sources that are as effective as the property sector.

China saw revenues from taxes on property sales slump 15.4 percent year on year in April. Those from land sales saw a 14.6-percent annual increase in 2011, slowing sharply from 57.8 percent in 2010, official data showed.

“It has been a tough job for the central government. The economy can’t withstand a meltdown in the property sector, but authorities don’t want to see previous cooling efforts go down the drain,” Niu said.

Xinhua