Balance needed as market cools: insiders
China is ramping up efforts to tighten real estate transactions, thwarting speculation that the nation might loosen restrictions on the real estate market to stimulate economic growth amid escalating China-U.S. trade tension.
While the tightening of the property market is becoming effective, a more detailed plan should be drafted to manage financial risks in the nation's economy, experts and industry insiders said.
According to media reports, banks in some Chinese cities have raised lending rates to curb overheating in the real estate market. In Beijing, the average increase in rates for first-home loans was 10 percent above the benchmark rate, and 20 percent for second-home loans.
An employee at a bank in Beijing told the Global Times on Monday that his bank's rate for first-home loans was 40 percent above the benchmark rate.
The national average interest rate for first-home loans was 5.67 percent in July, rising for the 19th consecutive month, data from domestic loan services provider rong360.com showed.
There has been speculation that China might loosen restrictions on the real estate market to stimulate economic growth amid escalating China-U.S. trade tension, but an industry insider surnamed Dong predicted that the real estate regulations will be further strengthened, rather than relaxed in the next six months.
"The Chinese economy is now facing both domestic and external challenges, but preventing financial risks is a much more important task than maintaining rapid growth," Dong said, adding that deleveraging and structural reforms should remain the government's priority.
Song Ding, a research fellow at the China Development Institute, warned that while it's important "to curb the pace of price increases in the real estate market, it's also important to prevent a slump, which might lead to a financial breakdown and a plunge in growth."
The rising rates have had some effect in curbing home sales, with the sales volume in Beijing's Chaoyang district falling back in recent months, but housing prices are still stable, said a manager at real estate agency Homelink, who wished to remain anonymous.
But the manager noted that the stricter lending policy also increases the cost for buyers who are really in need of a home, making the prices even more unaffordable for them.
Auctions of land have also seen a slump in recent months, and some cities have reported failures of land auctions. For example, in Taiyuan, North China's Shanxi Province, auctions of eight plots of land were reported to have failed on Saturday, and there has been a similar situation in some first-tier cities, including Shanghai and Guangzhou, capital of South China's Guangdong Province.
"Given the tougher regulation of the industry and the tight capital chain in the market, developers are holding a wait-and-see attitude in order to avoid potential risks," Yan Yuejin, a research director at E-house China R&D Institute, told the Global Times on Monday.
"This shows that the regulation policy has gradually taken effect, forming a more rational attitude among both the buyers and the developers," Yan said.
However, Song cautioned that if there is a shortage of supply in the future, China may have to prevent another round of housing price hikes.
"After speculators are kicked out, there will always be some buyers who have rigid demand for homes, and the government has to ensure that an imbalance in supply and demand does not lead to a new round of price hikes in the market," Song noted.
Dong said the authorities "should finalize a more detailed plan in the next round of real estate regulation, to increase the supply of residential housing and public rental housing." It's important to "continue to prevent speculation activities," Dong said.
