HOME, SWEET HOME: Government officials say reasonable and affordable housing prices are needed before the residential real estate sector can bounce back (LONG HONGTAO)

Officials from four ministries held a press conference in Beijing on January 6 to offer a remedy for the sagging Chinese property market in order to mitigate the effects of the economic downturn this year. They agreed to invest more in housing projects for low-income urban families and encourage property developers to cut prices to sell more homes. The moves are the latest government efforts to boost construction and sales in the real estate industry.

The total area of properties sold last year was expected to drop 21 percent compared with that in 2007. This has worried officials as real estate investment has given great impetus to the country's economic growth in the past decade.

Stagnant home sales have created a multiplier effect on the rest of the economy with a diminishing demand for steel, copper and other construction materials, as well as plummeting sales of home appliances and consumer electronics. The construction industry alone, for example, provides jobs to about 9 percent of urban laborers, according to official statistics. China's economic growth this year could be even lower than the widely anticipated 8 percent if the property market fails to recover.

The healthy development of the property market is vital to China's national economy and will help boost consumption and improve people's livelihood, said Huo Yingli, Deputy Director of the Financial Market Department at the People's Bank of China, the country's central bank.

Housing projects for low-income urban families are the government's top priority this year, said Qi Ji, Vice Minister of Housing and Urban-Rural Development. From 2009 to 2011, the government will strive to improve the living conditions of 7.47 million low-income urban families by developing economically affordable housing and low-rent housing programs, he said. Some 1.3 million units of affordable housing will be added annually during the three years.

The State Council made it explicit in August 2007 that 10 percent of the gains from the housing provident fund-the country's mandatory long-term housing savings program-and 10 percent of the net profits from land sales would be collected to finance welfare housing projects for low-income families. In the wake of the financial crisis, the Central Government specially designated 10 billion yuan ($1.5 billion) to build low-rent homes and make improvements to shanty dwellings.

The Ministry of Land and Resources, China's top land regulator, issued a notice last December that it would strengthen its supervision of land use during the stimulus period and require local land regulators to give priority to centrally funded low-rent housing projects and the renovation of shanty dwellings.

The government also considered boosting home sales by offering home buyers help with mortgages. Last October 22, the central bank allowed banks to reduce the required minimum down payment from 30 percent to 20 percent. It also doubled the maximum discount of the benchmark-lending rate to 30 percent from 15 percent on October 27.

Huo said the central bank has given commercial banks some flexibility in offering differentiated services to customers, because the property market has developed unevenly in different regions in China based on varied land costs, local economic strength and the average income of urban residents.

In another measure on December 20, the Ministry of Finance issued favorable taxation policies to encourage home purchases when it announced that it would temporarily suspend the business taxes in 2009 on secondhand home transactions.

"This adjustment will cut the transaction cost and promote the development of the market for secondhand home transactions," said Wang Xiaohua, Deputy Director of the Taxation Department of the Ministry of Finance.

There were two more taxation adjustments in the industry last year. One was in March when China exempted low-rent and affordable housing projects from taxes involved in the construction and operation process. The other was on November 1 when the deed tax levied on home transactions was cut to 1 percent for first homes smaller than 90 square meters. The stamp duty and the value-added tax on land sales were also cancelled for individual home purchases or sales.

No immediate effect

It will take some time for the favorable taxation policies to be effective, and whether the Ministry of Finance will introduce more policies in 2009 depends on the outcome of the initial policies, Wang said. At the recent press conference, officials from the four ministries said current housing prices were still higher than what ordinary urban families could afford, and whether the real estate market could be effectively stimulated hinged on reasonable housing prices.

Also on December 20, the State Council issued guidelines that encouraged property developers to adapt to market changes and cut prices in order to boost home sales.

"By the joint action, we aim to boost the transaction volume of commercial housing projects instead of maintaining or stabilizing current housing prices," Qi said.

While stressing the importance of getting housing prices to a reasonable and affordable level, the government is moving toward implementing a long-awaited plan to allow mainland property developers to raise capital through real estate investment trusts (REITs). The State Council said last month that it would begin a pilot REIT program. Huo said at the press conference that related ministries are deliberating the program, but gave no timetable. The introduction of the investment vehicles could help cash-strapped developers, because it would provide them with an alternative to bank financing, she said. China's banking regulators would focus on risk prevention, simplifying the product chain and enhancing product transparency of REITs to avoid a subprime mortgage tragedy, she added.

The central bank is also requiring commercial banks to grant loans to small and medium-sized economical housing projects and provide financing services to merger and acquisition transactions between property developers with good credit histories.