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Construction: China's house prices may cool in 2009

By Han Xiao (China Daily)
Updated: 2009-01-16 07:45

A real estate project in the Central Business District of Beijing. [China Daily]

Property prices in China may see a huge downward pressure this year as economic uncertainties worsen and more affordable housing enters the market, experts said.

Beijing is planning to construct 28.3 million sq m of residential buildings this year, and 43 percent of this would be affordable housing. Shanghai, too, has a similar plan, with affordable housing accounting for 45 percent of the newly constructed dwellings this year.

Qi Ji, vice minister of housing and urban-rural construction, said the government would spend 900 billion yuan on building affordable housing over the next three years.

Related readings:  Realty firms change tack to beat crisis  Beijing mayor rebuffs concerns over cheap homes scheme  Real estate bubble set to burst  Property sector needs to adapt to changes

"The entrance of so many government-subsidized dwellings would definitely drag down property prices and reinforce people's wait-and-see attitude," said Huang Yu, vice president, China Index Academy, a property research institute.

The worsening economic outlook, coupled with increasing job risks and salary cuts have also made prospective buyers think twice before buying new homes.

Ma Jun, chief economist, Deutsche Bank, said the trend of property market usually follows the overall economy.

"There is still room for property prices in China to fall this year," said Ma.

Huang, however, feels that property transaction volumes would rebound this year as prices adjust themselves to more reasonable levels.

"The second-home buyers will play an important role in this year's housing market as more favorable policies can be expected to reduce transaction costs," he said.

Experts are of the view that the government needs to introduce measures such as permitting buyers to deduct their home purchases from income tax to revive the property market. Finance ministry officials, however, feel that new tax incentives are unlikely in the near term.

Wang Xiaohua, deputy director of the tax department, Ministry of Finance, said the government would examine the effectiveness of steps taken last year before taking any further action.