Housing market still a sensitive social issue

Real Estate | Mike Bastin

Even though 2013 is well under way there remains considerable disagreement over the current and future state of the housing sector in China. Some even question the impact of government policies in this sector over the past few years, citing recent increases in house prices in some cities.

Recent property price increases, together with a decrease in the value of land sales to 2.69 trillion yuan ($427 billion) in 2012, have led to a cloud of confusion hanging over the industry.

It is important to revisit the overall objective of the central government's housing policies in recent years. The central government did not set out to deflate the housing market, but instead sought to calm the explosive growth witnessed in most major Chinese cities shortly before and after the 2008 Beijing Olympics.

Runaway prices were causing considerable economic and social unease across China, and were also fueling inflationary pressures. As a result, the government set out a few years ago to stabilize the housing market but not to bring about any sizeable reduction in house prices.

And this is largely what has taken place. In particular, policies aimed at curbing short-term, speculative investment in the housing sector have proved successful.

While the government has certainly introduced calm and put an end to massive price increases year after year, there have still been some fluctuations, which is unavoidable. Recent price increases there may be, but these are modest and inevitable.

China's consumer price index peaked at 6.5 percent in July 2011, but since then has steadily fallen and remains well within government guidelines.

It is, therefore, difficult not to judge the government's policies a success when we see far less turbulence in house prices and stable inflation.

What has also changed quite noticeably over the last few years is the structure and players in China's housing industry. One of the causes of such instability and uncertainty a few years ago was the presence of so many companies of extremely dubious credibility within China's housing industry. Once again, it is difficult not to conclude that government policy has proved successful. A seismic industry shakeout has taken place with the elimination of many smaller, untrustworthy participants. Even those few, larger players such as Vanke and Wanda are now acutely aware of the firm and decisive government action that will result if there is even the slightest suspicion of any wrongdoing.

Social media and government action have combined to build a powerful, constant threat toward any company operating in China's housing industry.

So, what will we see in 2013? Will China's housing sector continue to rebound? Or will consumer confidence remain dented and result in fairly sluggish performance? I foresee more of the former with modest, but unspectacular, growth in 2013. The government will certainly remain very sensitive to any sort of dramatic price changes, and will not hesitate to inject policies to stimulate demand and/or levy taxes in order to retain sufficient stability.

A stable but modestly growing housing sector is not only good for current homeowners and potential house buyers, it will also contribute to a stable but growing Chinese economy. This will provide a more sensible and sustainable growth model for housing and China as a whole.

The author is a visiting professor at the University of International Business and Economics in Beijing and a researcher at Nottingham University's School of Contemporary Chinese Studies.