As the Chinese government seeks new growth drivers, an existing economic pillar — real estate — has been languishing.
Although central authorities have unveiled measures to help clear the property inventory, it would be difficult for the sector to become an economic engine again.
In a study, the Chinese Academy of Social Sciences (CASS) blamed high home prices for dragging demand growth in the recent past and having an adverse effect on the nation’s goal for structural transformation of the economy.
The study projected a sharp fall in home prices after the second quarter of next year due to severe oversupply.
As inventory remains at high level, developers are reluctant to invest. Investment growth in home construction fell to 1.3 percent in the first ten months of this year from 9.2 percent in 2014.
Curbs on new home purchases have been removed in many cities. Cuts in interest rates and bank reserve requirement ratios also had some positive impact on new home sales.
However, the sector is not out of the woods as oversupply is still a critical issue.
Given the situation, authorities may take a fresh look at the sector and come up with more rescue measures.
CASS recommends a slew of steps, including further interest rate cuts, tax incentives for homebuyers, and simplification of property transaction procedures.
Leading developers like Evergrande (03333.HK), which reported good sales figures recently, may benefit from potential consolidation moves in the market.
This article appeared in the Hong Kong Economic Journal on Dec. 4.
Translation by Myssie You
– Contact us at [email protected]