Mainland governments, both central and local, have thrown in the towel in the face of a slumping property market, reflecting official fears of a steeper-than-expected economic slowdown.
In a round of activity this week, the People’s Bank of China said in a statement Tuesday that commercial banks should set mortgage rates at “reasonable” levels and grant housing loans faster, especially to first-time buyers. The same day, a deputy governor of the central bank also held a meeting with executives from 15 commercial banks to ask them to improve their housing finance services for homebuyers.
It is the strongest signal yet that the central authorities are worried about the property slowdown. It also shows that top policymakers still view the property market as a savior whenever the economy slows beyond what they call a reasonable range.
The central bank’s request came as commercial lenders have been reluctant to approve home loans since the last quarter of last year, partly contributing to the cooling property market.
The request also followed a number of measures rolled out by local governments to support the real estate market. Late last month, Nanning, capital of the Guangxi Zhuang Autonomous Region, became the first mainland city to openly loosen restrictions on home purchases. It allowed people without a hukou, or local household registration, to buy property in the city. Wuxi in Jiangsu province, Tongling in Anhui and Ningbo in Zhejiang jumped onto the bandwagon and more cities are eager to follow suit.
The enthusiasm of local governments to salvage the property market is understandable because they have long been addicted to the market. Most local government revenue comes from real estate and local economies are heavily dependent on the industry.
But the central government was thought to be determined to kick the addiction. Although this administration hasn’t declared war against rising property prices as its predecessor did, it has maintained a tight monetary policy to squeeze speculative capital from the property market.
And its efforts have paid off to some degree.
After more than a year of tightening, many banks chose not to lend frantically to property developers and buyers. I surveyed 35 bankers last month in Jiangsu, Zhejiang and Guangdong provinces, the most economically dynamic regions in China, and 26 said their institutions have curbed loans to the property market, especially the commercial real estate sector. Eight said their institutions had stopped lending to commercial property developers in their cities.
The reluctance of lenders to lend is in line with the central government’s direction and desire to cut the leverage level of the Chinese economy.
But the central bank’s instructions on Tuesday mark a turnabout. The central authorities now seem worried that the sluggish property market may break the capital chain of too many companies and ultimately evolve into a financial crisis.
Bricks in the central government’s wall of determination could have been loosened by the bleak data for April, which showed economic momentum had worsened despite mini-stimulus policies launched last month. Industrial output rose 8.7 percent in April, the slowest growth in five years. Fixed-asset investment, much of which comes from the property market, grew 17.3 percent in the first four months of the year, slowing from 17.6 percent in the first quarter.
The economy is not doing well, but top policymakers are sticking to the 7.5 percent growth target. Premier Li Keqiang said during his recent trip to Africa that China can achieve its economic goals this year.
Now that retail sales, on which top policymakers pin high hopes, increased 11.9 percent in April, the slowest pace in more than five years, it’s clear that building a consumption-led economy is no easy task.
So, policymakers have to return the default mode: using the property market as a silver bullet. That’s why the central bank stepped in to bolster the market.
Although the central bank has repeatedly stressed that its broad monetary policy has not changed and the housing-loan boost was aimed at helping first-time homebuyers instead of speculators, the adverse effect of the policy turnabout will be obvious: The hope of kicking the addiction to the property market is vaporizing.
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