Chinese efforts to cool the property market have been branded ‘too effective’, falling to dangerously low levels, according to reports
This week the Financial Times reported that property transactions have fallen by 39 per cent year on year, according to figures released for October, in China’s 15 biggest cities.
Fresh concerns are now surfacing that the government has underestimated the impact of their cooling measures and may not be able to manage a quick policy change response.
Almost 13 per cent of China’s economy is accounted for by property construction, so a fall in homebuyers will affect local industry and a Chinese slowdown could have ‘a devastating’ effect on the global economy.
According to the Financial Times Chinese vice-premier Wang Qishan, who oversees the financial sector, has warned that China now needs to deepen financial reforms to cope with a predicted global recession.
He told the paper: ‘Right now the global economic situation is extremely serious and in a time of uncertainty the only thing we can be certain of is that the world economic recession caused by the international crisis will last a long time.’
Only last year the Chinese economy was described as ‘healthy and buoyant’ with the commercial property market booming and tenant demand for rental properties as high as before the global financial crisis (see RICS Global Commercial Property Survey).
However as Chinese authorities became increasingly concerned about the overheating property market and inflation it introduced cooling measures to rein in monetary stimulus and tighten the property markets.
In late 2010 officials raised downpayments required for first and second homebuyers and stopped lending to third home and non-local buyers.
A new property tax was introduced in Shanghai and Chongqing, aimed to eradicate non-owner occupiers and purchasers. Each city determined its own tax rates which were between 0.5 per cent to 1 per cent of a properties annual value.