Shanghai: China’s attempts to deflate its property bubble come at a perilous time.
Fears that the euro might collapse, unleashing a tsunami of financial and economic disruptions around the globe, have added urgency to concerns that China’s campaign to cool overheated housing prices may go too far. As economic growth wanes, Beijing has begun easing tight credit policies meant to cool inflation but China’s leaders are also insisting there is no leeway for loosening curbs on the housing sector.
“The decision has been made that there will be no more property bubble,” said Andy Xie, an independent economist based in Shanghai. Measures to control the market — such as limits on home purchases and high downpayments to qualify for mortgages — are at a “critical period”, Vice-Premier Li Keqiang said last month, stressing a need for more progress on controlling prices.
Deep freeze: Stalled transactions and falling prices in major cities such as Shanghai have many in China wondering how long the deep-freeze will last. The impact of China’s property chill could stretch far beyond its crowded cities. With growth heavily dependent on construction and related industries, the slowdown already is sapping demand for domestic and imported products and materials and dampening Chinese investors’ interest in buying properties overseas.
Nobody is predicting a meltdown akin to those that led to the global crisis: most Chinese homeowners hold relatively modest mortgages, and demand in the long run will be sustained by demand for better, more spacious housing among increasingly affluent families.
Global risks: Apart from the global risks, deflating the property bubble is a tricky gamble for the communist leadership given its reliance on rising living standards for its claim to power. Homeowners whose life savings are in property are seeing the gains they once took for granted evaporate as developers are offering steep discounts on new apartments. Outraged buyers who recently bought at higher prices are protesting.