Let the bubble be squeezed

Does the jaw-dropping plunge in property sales in major Chinese cities during the May Day holiday indicate the country's decade-old housing boom has finally come to an end?

Or is it just a blip during the course of China's urbanization?

The answer differs, not only between the two sides of the market but also among Chinese policymakers.

It is reported that only 169 new apartments were sold from May 1 to 3 in Beijing, down by nearly 80 percent from the same period last year, and a record low since 2009.

Such a disappointing result is certainly not what property developers would expect from a holiday period that used to see brisk transactions.

Although total contracted sales in China's residential property market had already declined 7.7 percent year-on-year in the first quarter to 1.1 trillion yuan ($180 billion), few developers seemingly recognized substantial price cuts would be necessary to boost sales.

For individual consumers, a consensus seems to be forming that it is better to wait for prices to drop. And if such opinion prevails, it is more than likely that weakness in the property sector will get worse through the rest of the year.

If the invisible hand had been playing a basic role in the real estate market, it would be okay for the supply side and the demand side to take their time to work out a mutually acceptable new balance. Unfortunately, some local governments have rushed to unveil supportive policies aimed at spurring the sagging housing sales.

Their heavy dependence on revenues from land sales explains why these local governments cannot bear even a property market adjustment.

Admittedly, a thriving real estate sector has served as both a growth engine for many local economies and a key driver behind the country's urbanization.

However, it makes no sense to try to sustain a property boom at any cost when it has become dangerously frothy.

Fortunately, policymakers from the central bank have not blinked in face of the short-term pressure of shrinking property sales.

In its first-quarter monetary report released on Tuesday, the People's Bank of China said that it would strengthen its monitoring of default risks from loans to the property sector among others and aim to prevent these risks from spreading more widely through the financial sector.

It is hoped that such a prudent monetary stance will help the market to work its magic in squeezing out China's property bubble.