Wu Guangqiang

jw368@163.com

NEARLY two years since the adoption of the policy of cooling off the overheating housing market, house prices have only seen a slight dip nationwide. Moreover, the start of a new cycle of interest-rate cuts seems to have spurred some people to buy. The sales offices of some new housing projects are packed with buyers, a scene that was common two years ago. Prices are bouncing back, if not soaring again.

It’s premature to say that the efforts to contain house prices have fallen flat, but the odds are against the authorities, as public confidence in the success of the policy is declining. They dread a repetition of the aborted endeavor to cool off the volatile real estate market in 2009.

Anticipating which cards the government has in its hand, property developers will not yield an inch. They know that amid the sluggish economic situation, the plunge in housing sales will strike a heavy blow to many local governments whose financial revenue is highly dependent on land sales and housing-related taxes, and that they will have the last laugh if they persevere. They also understand the popular Chinese mindset when it comes to real estate: Owning a roof over the head is the best way to maintain and increase the value of their hard-earned assets. It’s true given the raging inflation rates over the years and the firm home prices.

Many signs have shown that developers are gaining the upper hand. Time and again, local governments seem to be ready to throw in the towel by releasing policies that loosen up rigid measures on housing speculation, though some of these were later suspended by the Central Government.

The latest concession — and the biggest so far, came from Henan. On June 26, media reported, citing the province’s official Web site, that some new measures, jointly issued by six provincial agencies, would encourage the purchase of a family’s first home. The preferential measures included a 30-percent discount on bank loans for the first home, and a loose definition of the first home: any family member who doesn’t own housing is entitled to buy one.

But the next day, an official with Henan Banking Regulatory Commission declared that the report was misleading, emphasizing that the policy had never officially issued. Obviously, the short-lived policy was withdrawn due to the pressure from above.

With the circumstances today similar to a few years ago, the population has good reason to be skeptical about the measure’s chance of succeeding, particularly when the fundamental cause of housing speculation still exists: tudi caizheng, or “land revenue.”

So the key to the successful implementation of the policy is whether or not local governments can reduce their propensity for revenue from land sales. New sources of revenue have to be created or the prospect is bleak.

The grave economic downturn is placing policymakers between a rock and a hard place. In the past, excessive dependence on the housing market for economic growth has greatly impaired China’s ability to restructure its economy. According to an insider with China Development and Reform Commission, the economic vacuum caused by the anti-housing-speculation policy is far greater than anticipated. The source also said he would not rule out an official policy shift if all options to meet economic growth targets failed. The challenge will be even sterner for local governments who have few fiscal resources other than those from the housing sector.

The consequences will be too grave to bear if efforts to curb the housing bubble fail. Most importantly, the Central Government will lose its credit, making it even more difficult for its future policies to be carried out. The skyrocketing house prices will prevent more people from owning a home, increasing the threat of social unrest, and China will follow Japan and some European countries, slipping into a long-term recession.

The good thing is that the Central Government is still unswerving in sticking to the bubble-curbing policy. With falling inflation figures, the recovery in economic growth, and the completion of more affordable housing for low-income people, hopefully, the authorities will be able to finally rein in the runaway property market.

(The author is an English tutor and a freelance writer.)