Developers will be encouraged to drop house prices, among other measures, in an effort to reduce the massive property inventories in China's housing industry, according to a statement released after an annual tone-setting economic meeting that concluded Monday, with such destocking seen as one of the key planks of upcoming supply-side reforms.
However, it is expected that there won't be massive cuts in home prices, especially in bigger cities. Also, it might take several years to sell the current inventory of homes, even factoring in the likelihood of more policy easing in the future.
So a substantial recovery in China's property market that could again fuel growth in the overall economy is not likely in the short term.
The statement issued Monday after the Central Economic Work Conference covered various facets of the economy, such as pushing for a more flexible monetary policy and a gradual increase in the deficit ratio, according to the official Xinhua News Agency.
But comments about the country's ailing housing market seem to have drawn the most attention.
"To increase the base of potential home buyers, China will reform its household registration system and allow new city dwellers to become registered urbanites," Xinhua reported, citing the statement. Individuals and organizations will also be encouraged to buy houses and rent them out, as the country moves to foster development of the housing rental market, according to the statement.
While a change of marketing tactics should definitely be considered by property developers to adapt to the actual market needs, reducing home prices might make more sense for developers catering to smaller cities.
The problem of high inventories is worst in third- and fourth-tier cities, as housing demand in first- and second-tier cites is generally greater than supply.
Also, price cuts might have only a limited effect in spurring purchases, unless the cuts are substantial. But it's unrealistic to expect property developers to offer huge discounts. If the government were to demand big price cuts, it would put more pressure on developers, whose profit margins have already been squeezed.
The statement also said "obsolete restrictive measures [in the property market] should be revoked," hinting at more policy easing in the pipeline aimed at revving up the property market.
Possible measures are likely to include a relaxation of mortgage down payment rules and a removal of home-purchase limits to allow a broader pool of buyers to consider purchasing a property.
As such, the country's housing market may be less of a drag on the overall economy next year, but it will probably not see a rapid return to its previous position as a major driver of growth.
Developers have become reluctant to acquire new land and invest in new property projects, considering the industry downtrend since last year. Instead, they have been diversifying their investment into other sectors.
If developers cut home prices, it might boost sales, but there are few signs of an increase in overall property investment in the current context.
The article was compiled by Global Times reporter Li Qiaoyi based on an interview with Xia Dan, a senior researcher at Bank of Communications in Shanghai.
