Relentless rumors and declining sales rattled nerves in the Chinese economy as worries about a tumble in home prices spread last week.
"A housing price tumble is unlikely, and the real estate slump is an entirely exaggerated forecast," said Jia Kang, director of the Research Institute for Fiscal Science at China's Ministry of Finance.
RUMOR OR TRUTH
Many investors and housing developers failed to enjoy Labor Day as rumors about minutes from a meeting held during the three-day holiday darkened expectations for the country's real estate industry.
According to the rumored minutes, Mao Daqing, vice president of China Vanke, the country's largest property developer by revenue, showed pessimism about the property bubble and said a real estate slump is brewing.
Mao soon after claimed the alleged statements were rumor, explaining that his warning about risks during an internal seminar had been distorted and his words had been deliberately mixed with other attendees' worries.
However, the country's disappointing performance in real estate this year has led some to believe the rumors are true.
Nationwide the total area of property sold in the first quarter edged down 3.8 percent year on year, and combined sales revenue dropped 5.2 percent year on year, figures from the National Bureau of Statistics (NBS) revealed.
According to statistics from Homelink, one of China's largest real estate agency and consultancy companies, residential housing sales dropped 18.4 percent month on month in April, down 18.1 percent from a year ago.
Meanwhile, slower property investment growth was seen as a major drag on China's fixed asset spending in the first quarter, weighing on broader economic growth, which dipped to 7.4 percent during the period.
UNLIKELY TUMBLE
Whether the statements were real or not, Vanke and governmental officials did not hesitate to explain and calm the reactions to rumors of a slump.
Yu Liang, president of Vanke, explained the rumor incident during an interview with Leju, a housing service online-to-online platform, saying that the company held a "prudent and optimistic" attitude toward the industry.
"Mao was trying to remind about market risks amid industry declines," Yu said. "The sense of risk should be enhanced among real estate companies and related investors."
He said the gaps between housing sales in different cities were widening, but would be eased under the nationwide declines in housing industry growth.
"Confidence should be had in the industry as China's urbanization process still offers vast development space for real estate businesses," Yu said.
Zhu Zhongyi, vice president of China Real Estate Association, said that individual cases of housing price declines did not indicate an overall real estate slump.
Zhu said that a home price tumble is unlikely in first tier cities, as demand still exceeds supply, though occasional price cuts for certain buildings are inevitable and natural.
Many cities, including Beijing, have set restrictions on home purchases, including higher down payment ratios and imposing caps on the number of apartments a family can buy.
In metropolises such as Beijing and Shanghai, home prices have been growing at a slower pace this year, while many second- and third-tier cities are experiencing property price declines.
Chinese people's expectations about home prices seem to be changing, and more are taking a wait-and-see approach amid reports of price cuts for new housing projects.
Large cities should persist in strict credit policies as real estate fever lingers, but supports should be provided for first-time home buyers and cities with tightened supply, Zhu added.
CONFLICT OF INTERESTS
The high-flying housing prices also reveal the uncomfortable fact that local governments' interests have become so entwined with real estate that they will endure big losses if housing prices tumble.
Land sales totaled 4.2 trillion yuan (682.21 billion U.S. dollars) in 2013, accounting for nearly 60 percent of local government income, according to statistics from central ministries.
The figure has been rising quickly in the past decade.
In the three years between 2004 and 2006, land sales totaled 1.9 trillion yuan, less than half the number in the year 2013 alone.
The average price per ten thousand hectares sold by the state was 33.2 billion yuan between 2004 and 2006, which more than tripled to 114.4 billion yuan last year.
Despite relying so heavily on land sales to property developers, local governments have also had to put in place policy controls aimed at taming housing prices to address widespread discontent.
The policies vary from city to city, but any attempts appearing to lessen controls or warm up the housing market would face the scrutiny of a highly sensitive public.
Tongling, a lesser-known city in central China's Anhui Province, became one of a few cities to make headlines this week with a package of stimulus polices, which include government subsidies for stamp duties in house purchases, prompting speculation that other local governments might follow suit.
"The housing prices have already overheated, which need cooling down," said Deng Yusong, deputy director of the Market Economy Research Department of the Development Research Center of the State Council.
The government should return to a neutral position in the housing market with neither stimulus nor restraints, Deng added.
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