HONG KONG (Reuters Breakingviews) – China’s real estate cold turkey risks withdrawal. The economy is cooling, the trade war is worsening, yet Beijing still refuses to juice housing markets. Injecting stimulus without touching a sector that feeds about 15% of GDP won’t be easy. That officials are trying suggests the government is willing to bear unprecedented pain to hold home prices down. The prospect of Beijing loosening home purchase restrictions to jolt growth has tantalised markets for months. During a growth scare early this year and in late 2018, it seemed they might, leading several local governments to quietly ease measures. Then, after strong first-quarter growth, a Politburo meeting readout inserted an oft-repeated slogan that “houses are for living, not speculating,” a hint policy relaxation was not imminent. In late July, another Politburo meeting vowed not to use property as a tool for short-term stimulus, even though Chinese real estate props up demand for everything from cement to glass to toilets to furniture, not to mention loans. Leaders may be reluctant to let property loose because home prices have decoupled from the broader economy. GDP growth cooled to 6.2% in the second quarter of this year, compared to 6.7% growth in the same period of 2018. Yet average new home prices keep rising at about 10% year-on-year, even as property sales have been flat. Should China ease purchase restrictions, prices would almost certainly spike upward, which could inflate bubbles. Some analysts also worry higher mortgage payments would end up crowding out other purchases, like automobiles. Some developers are already showing signs of squeeze. China Evergrande Group, for instance, reported on Wednesday that its first-half net profit fell by nearly half compared to the same period in 2018. Land sales accounted for 28% of their total fiscal revenue in 2018, notes Moody’s Investors Service. They declined by nearly 10% in the first quarter, just as income is being eroded by tax cuts intended to goose business activity. That might in turn weaken the fiscal ability to stimulate, and also pay off nearly 20 trillion yuan in recognised debt. It’s a risk Beijing seems willing to take.
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