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Housing construction is increasing again

(China Daily/Agencies)
Updated: 2009-09-07 08:06

The government is attempting to pass the baton of growth from State-funded infrastructure investment to the private housing sector, a risky but necessary move to sustain the economic recovery.

Construction cranes sprouting in big cities, busy furniture shops and soaring property sales all show that the transition is going smoothly so far.

But officials are wary that housing prices might rise too high, too quickly.

China's biggest listed property developer, Vanke, lifted its housing starts target for this year by 45 percent, while its rival Poly Real Estate said sales in January through July increased 143 percent from a year earlier.

On the ground, construction firms, big and small, are trying to meet the demand. For them, last year's downturn is now a distant memory.

"It's been a long time since we've had a day off," said Zhang Minghui, owner of a small building company in Beijing.

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Zhang cut his staff to three in November, but he is now back up to a crew of 14.

The economic importance of the property sector in China is hard to overstate.

Investment in residential housing accounted for about 10 percent of the GDP before a property boom turned to bust in 2008, roughly the same as the contribution from the country's vaunted export factories.

The government's first steps last year to revive the stalling Chinese economy were to offer tax cuts to encourage home purchases, followed by rules to ease access to mortgages.

These are bearing fruit.

With housing investment up an annual 11.6 percent in the first seven months, growth momentum is broadening out and the central government has been able to slow the pace of its stimulus spending on infrastructure.

Real economy

But the government must strike a fine balance in its bid to kick-start the housing market.

China wants rising prices to persuade house hunters to stop putting off purchases and to get developers to invest in new projects.

The government also is wary of prices rising too quickly, luring speculators into the market and turning it into an asset bubble, not an economic driver.

"Because it is closely linked to so many industries, volatility in the real estate market will inevitably lead to macroeconomic volatility," a report in the China Economic Times said.

The housing market rebound in Beijing, Shenzhen, Guangzhou and other big cities means that prices are already back to their 2007 peak, the report noted.

While prices are high, a surge in sales has depleted housing inventories, and developers need to break ground to catch up, Ken Peng, an economist at Citigroup in Beijing, said.

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