BEIJING, March. 21 -- China's move to raise mortgage costs might not be enough to halt the country’s property bubble, and tougher steps would soon be needed to slow the booming sector, analysts said.
To help cool soaring housing prices, the central bank from Thursday ended preferential mortgage rates and began allowing banks in some cities to require bigger down payments.
It was the latest move in China’s campaign, nearly two years old, to cool the fast-growing economy. But economists say it may not be enough.
Speculators have been pouring so much money into the sector that the new adjustments are unlikely to deter them for long.
“The latest measures are very mild,” said Andy Xie, Morgan Stanley’s China economist.
“The measures may be effective for a month or so, but speculation could revive if the government does not follow up with more stringent measures.”
Xie has long argued the Central Government needs to get serious about deflating a property bubble he argues not only threatens the economy as a whole but exacerbates social tension.
“In China, most people are beginning to lose hope of buying a property as prices escalate, but still they see so many empty flats,” Xie said.
“The measures may soothe public concerns by creating the impression that the government cares. However, if no further measures are introduced, speculation could flare up again.”
Nationwide, residential housing prices surged 15.2 percent last year, the central bank said Thursday.
The new mortgage policy was announced after a raft of recent data showed unexpected strength in the economy, with industrial output, consumer inflation and fixed-asset investment all showing higher-than-expected growth in the year through January and February.
“China has a lot more work to do in implementing the tightening measures that are required for a slowed economy and a more sustainable economic expansion,” Stephen Roach, Morgan Stanley’s chief economist, said in Shanghai.
The property move was also announced as central bank cut the interest rate paid on excess reserves placed with it by banks.
Some analysts concluded the central bank was giving lenders a bit more leeway to expand loans after a year of cracking down on excessive credit growth.
“We see limited macro implications from these measures, although they are likely to help banks manage their liquidity and lending risks better,” said Goldman Sachs economist Hong Liang.
The mortgage move also raises the question of whether China is now more or less likely to hike benchmark interest rates soon, after increasing them in October for the first time in nine years.
That increased the one-year lending rate by 0.27 percentage point to 5.58 percent.
On one hand, the mortgage measure shows that the Central Government is still willing to tackle what it sees as trouble spots in the economy.
Yet it may also indicate that authorities prefer to stick to narrow measures targeting specific sectors rather than increase interest rates, a move that would raise borrowing costs across the board and squeeze many cash-starved State firms.
Xie argues for something different — a capital gains tax of 50 percent on the sale of properties held for less than one year, with a 10 percentage point reduction in that rate for every year the property is held.
“A property tax is a steady source of revenue and could decrease the incentives for local governments to prolong the bubble,” Xie said. (SD-Agencies)
CHINA’S move to raise mortgage costs might not be enough to halt the country’s property bubble, and tougher steps would soon be needed to slow the booming sector, analysts said.
To help cool soaring housing prices, the central bank from Thursday ended preferential mortgage rates and began allowing banks in some cities to require bigger down payments.
It was the latest move in China’s campaign, nearly two years old, to cool the fast-growing economy. But economists say it may not be enough.
Speculators have been pouring so much money into the sector that the new adjustments are unlikely to deter them for long.
“The latest measures are very mild,” said Andy Xie, Morgan Stanley’s China economist.
“The measures may be effective for a month or so, but speculation could revive if the government does not follow up with more stringent measures.”
Xie has long argued the Central Government needs to get serious about deflating a property bubble he argues not only threatens the economy as a whole but exacerbates social tension.
“In China, most people are beginning to lose hope of buying a property as prices escalate, but still they see so many empty flats,” Xie said.
“The measures may soothe public concerns by creating the impression that the government cares. However, if no further measures are introduced, speculation could flare up again.”
Nationwide, residential housing prices surged 15.2 percent last year, the central bank said Thursday.
The new mortgage policy was announced after a raft of recent data showed unexpected strength in the economy, with industrial output, consumer inflation and fixed-asset investment all showing higher-than-expected growth in the year through January and February.
“China has a lot more work to do in implementing the tightening measures that are required for a slowed economy and a more sustainable economic expansion,” Stephen Roach, Morgan Stanley’s chief economist, said in Shanghai.
The property move was also announced as central bank cut the interest rate paid on excess reserves placed with it by banks.
Some analysts concluded the central bank was giving lenders a bit more leeway to expand loans after a year of cracking down on excessive credit growth.
“We see limited macro implications from these measures, although they are likely to help banks manage their liquidity and lending risks better,” said Goldman Sachs economist Hong Liang.
The mortgage move also raises the question of whether China is now more or less likely to hike benchmark interest rates soon, after increasing them in October for the first time in nine years.
That increased the one-year lending rate by 0.27 percentage point to 5.58 percent.
On one hand, the mortgage measure shows that the Central Government is still willing to tackle what it sees as trouble spots in the economy.
Yet it may also indicate that authorities prefer to stick to narrow measures targeting specific sectors rather than increase interest rates, a move that would raise borrowing costs across the board and squeeze many cash-starved State firms.
Xie argues for something different — a capital gains tax of 50 percent on the sale of properties held for less than one year, with a 10 percentage point reduction in that rate for every year the property is held.
“A property tax is a steady source of revenue and could decrease the incentives for local governments to prolong the bubble,” Xie said.
(Source: Shenzhen Daily/Agencies)
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