Commentary

China Watch

Forum Digests

Columnists

Letters

Let market forces prevail

(China Daily)
Updated: 2008-12-22 07:44

The policy support that the central government gives is meant to create a favorable climate for the sluggish property market to bottom out. Local governments can surely do their bit to help bring such policy incentives into full play. But what they should never try to do is replace market forces with administrative measures to stop the cyclical correction of housing prices.

In the latest attempt to buoy the declining domestic property market, the State Council announced last week that it will waive business tax on real estate sales and relax mortgage policies for second-home buyers.

As a key sector that contributes to a quarter of China's fixed-asset investment and employs 77 million people, the downward adjustment of the property market certainly justifies government support, especially when the national economy has been hit increasingly hard by the global financial crisis and economic recession.

Latest statistics show that the floor space of residential properties sold in the first 11 months fell 18.8 percent from a year earlier, while real estate investment growth slowed to 22.7 percent in the January-November period, down from 24.6 percent in the first 10 months.

By gradually removing restrictive measures, adopted to rein in the unchecked surge in housing prices in recent years, the central government made clear its resolve to revive the property market. But the latest policy relaxation aims to not only revamp a key growth engine for the economy but, more important, to substantially increase supply of affordable housing for the poor.

For local governments, which usually depend heavily on revenues from the real estate sector, the central government's new stimulus package is certainly more than welcome.

Nevertheless, that does not mean local governments can hence step in to prevent property developers from cutting prices to boost sales.

It was reported that local authorities in Nanjing had decided to fine two developers for "cutting prices below cost".

Such direct government intervention in house prices appears anachronistic.

There were indeed many public calls for government intervention in the past several years when housing prices went through the roof in many Chinese cities. But as house prices fall now, some local officials venture to stand in the way of a cyclical correction that seems to have just begun.

Worse, such efforts to control house prices will go largely in vain. They can only protract the adjustment that should be fundamentally driven by market forces.

Local governments should focus on fulfilling their promises of more low-rent and affordable housing for the poor. As for the commercial property market, they can just leave it to suppliers and buyers. A drastic correction must be painful. But it is good for a fast recovery.

(China Daily 12/22/2008 page4)