Supply- side reform push needed to ease home prices
Singapore, where housing prices are falling, has emerged as possibly the most enviable place to live for Chinese people filled with property concerns. While it’s less likely that what has proved to be effective in Singapore could achieve the same effect in China’s case, the approach the Singaporean government has taken to dampen speculative real estate investing – a fundamental reason for skyrocketing home prices – can be of some help for its Chinese counterpart.
In a striking sign of insufficient interest in homebuying, Fitch Ratings said earlier this month that home prices in Singapore may continue on a downward trend despite steps by the government to ease up on property cooling measures.
In China, on the other hand, the word “home” stirs up feelings of bitterness among those scrambling for a living in major cities in China, especially in the three first- tier cities – Beijing, Shanghai and Shenzhen – where the purchase of even a shabby one- bedroom apartment is too painful to consider despite property cooling measures that have been announced by local governments.
Adding to the quandary, those that have left their homes to work in big cities have found that house prices in their hometowns have also picked up in recent years, putting them in a precarious situation of potentially being unable to own a home in either place.
As such, China’s frothy property market has apparently raised concerns, with top- level officials reiterating over the past week the government’s hardline attitude toward speculative homebuying. Meanwhile, a slew of cities including Beijing and Guangzhou recently announced fresh property curbs.
This new round of cooling efforts joins many previous rounds of tightening which offered little respite before another round of price upticks. Thus, a question arises as to whether there is any hope for a genuine cooling which would be of pivotal importance for the healthiness of the world’s second largest economy.
In a keynote speech on Sunday at China Development Forum, Vice Premier Zhang Gaoli said homes are supposed to serve the purpose of living rather than of speculative investing, cautioning against risks in the property sector. A true crackdown on speculative homebuying in the country, it seems, would require much broader efforts than repeated rounds of purchase restrictions and mortgage lending tightening. To be fair, there’s nothing wrong with the implementation of property cooling measures. As in the case of Singapore, multiple rounds of cooling measures, including shorter mortgage terms, increased stamp duties levied on property sellers and higher down payment ratios, played a part in cooling its property sector which had soared over the course of a few years in the wake of the 2008 global financial crisis. However, it needs to be noted that behind the cooling measures are the Singaporean government’s efforts that included the development of public housing known as HDB flats – apartments built and maintained by the Housing Development Board – which are home to over 80 percent of Singaporeans. The Singaporean government is also providing subsidies for local people who are in need of improving their housing conditions. In doing so, there’s not much inelastic demand for houses that has yet to be unsatisfied, thus rendering it risky for speculative investing. Strict rules set by the government to restrict home purchases by foreigners also significantly cuts down on the possibility of imported speculative investing.
On top of that, Singapore is not dependent on the property sector to underpin its government coffers, with its state investment fund Temasek Holdings proving to be a fairly capable state wealth manager and consequently providing a stable solution for its finances.
In light of this, China should ramp up efforts to push for supply- side reforms in its property market, which means not only building more public housing, but enabling resources that range from education to healthcare to employment to be distributed more fairly across different cities so as to ease the man- made housing imbalance in bigger cities of the country. Otherwise, property curbs that are put into place in certain cities, while being absent in other cities, often seem to be providing opportunities for speculation.
More importantly, it’s urgent for local governments to bid a farewell to the reliance of their finances on the property sector. This would certainly mean travails by many local governments, which are also burdened with a variety of tasks to improve local people’s livelihoods.
All of this points to deeper economic reforms which entail efforts by both the central government and various local governments. In addition to the government’s call for differentiated efforts against speculative purchases in different cities, it is hoped that there will be ramped- up actions to address the deep- rooted problems that have led to China’s property woes.