December 13, 2011 6:17 pm

Beijing urged to bolster house sales

Friction is rising over Beijing’s real estate policies, with some top Chinese policy advisers arguing that restrictions should be loosened to avoid an abrupt economic slowdown.

In a commentary published on Tuesday, an adviser to China’s central bank recommended an adjustment of existing policies to boost the number of housing transactions and provide a “soft landing” for the property sector.

“If tightening is too fast and too abrupt it will have an overwhelming impact on overall economic growth,” Li Daokui wrote in New Fortune magazine. “If housing prices drop drastically it would place an enormous burden on the sentiment of many middle-income households.”

But in a sign of how contentious the issue has become, a front-page editorial in the People’s Daily, the Chinese communist party’s flagship newspaper, argued that current restrictions should remain in place to further reduce property prices.

Over the past 18 months the government has imposed increasingly harsh restrictions including higher downpayment requirements, higher mortgage rates and even an outright ban in some cities on purchases by non-residents or households that already own apartments.

Those measures have started to take effect, with transaction volumes falling dramatically and prices starting to drop as well.

This has worried many economists, who argue that falling transactions and prices could stall new construction in an economy that relies on the sector to drive overall growth. Real estate construction accounted for around 13 per cent of gross domestic product last year and a quarter of total investment.

Mr Li urged the government to provide more support to first-time homebuyers and to loosen lending policies and purchase restrictions.

Most analysts expect the government to reverse many of its restrictions if prices fall more than 25 per cent over the next year, but some worry Beijing may wait too long to reverse course for fear of losing credibility.

Communist officials were scheduled to wrap up a three-day meeting on the economy on Wednesday, during which the central government was expected to come under intense pressure to ease property restrictions. Last week the politburo, the party’s top decision-making body, set the tone for the meeting by emphasising that current policies would be maintained to bring housing prices down to “normal levels”.

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