Beijing is showing signs of reversing its property market crackdown, a move that could buoy the wider economy but also risks reigniting a surge in home prices.
New home prices in the Chinese capital rose for the first time in almost two years in July, according to data released by the National Bureau of Statistics on Monday. The increase, though modest at 0.3%, was a reversal from a 0.5% decline in June and marked the first month-on-month gain since August 2020.
The turnaround in Beijing’s property market comes as the government has begun to ease some of the restrictions it imposed on the sector last year in an effort to cool soaring home prices and reduce financial risks.
In July, the People’s Bank of China lowered mortgage rates for first-time homebuyers and reduced down payment requirements for second homes in some cities. The government has also signaled that it is willing to provide more support to developers, many of whom have been struggling with a liquidity crisis.
The easing of the property market crackdown is a sign that the government is becoming increasingly concerned about the impact of the downturn on the wider economy. Property investment accounts for about 15% of China’s gross domestic product (GDP), and a prolonged slump in the sector could drag on growth.
However, the government’s decision to ease the crackdown also raises the risk of reigniting a surge in home prices. Prices in Beijing and other major cities have already started to rise in recent months, and there are concerns that the government’s support for developers and homebuyers could further fuel speculation.
The government has said that it remains committed to preventing a resurgence of the property bubble. However, it is unclear how it will manage to achieve this while also supporting the economy. The balancing act will be a challenge for policymakers in the coming months.
In addition to the risks to the economy, the government’s decision to ease the property market crackdown is also likely to have a social impact. A surge in home prices would make it even more difficult for young people and low-income families to afford a home. This could exacerbate social inequality and lead to increased social unrest.
The government’s decision to ease the property market crackdown is a complex one with both positive and negative implications. It is too early to say whether the move will ultimately be successful in supporting the economy without reigniting a surge in home prices. However, it is clear that the government is facing a difficult challenge in trying to balance these two objectives..
