Cover story, issue no.375, July 7, 2008
Translated by Ren Yujie
Original article: [Chinese]

"Maybe now is the time to start considering action."
- An anonymous housing official, to the EO

The mounting risk of a bubble bursting in China's house market has led regulators and officials to ramp up their involvement in the issue over the past month.

Since June, officials from the National Development and Reform Commission, the Ministry of Construction, and the People's Bank of China have been visiting with real estate leaders to get a handle on the risks in the industry. Meanwhile, developers have been proactively submitting suggestions to regulators and appealing for government action.

The EO also learned that the China Real Estate Association (CREA) had held a meeting this week to discuss the situation with regulators and submit suggestions.

Lie Meisheng, chairman of China Real Estate Chamber of Commerce (CRECC), said the group would submit five proposals to the National Association of Industry and Commerce.

Real estate developers have been hurt by tighter credit policies meant to slow down the economy, which have depressed demand for housing. Developers fear that if prices begin to slip, buyers will hold off until prices bottom out. This, they worry,could touch off a much greater slide.

The EO has learned that many government agencies were in the "investigation and research" phase, and that no single department would set an overarching policy course.

July would be a key month for China's real estate market.

Developers believed that difficulty in raising funds was already severe and would go on to affect banks, and that continuously depressed housing sales would accentuate the fund transfer problem. They wondered if the government could provide support with funds, or help in freeing up market demand.

Lie made a speech in Hainan Boao Real Estate Forum on June 28, where he pointed out the tight links between real estate and finance, and proposed that policies targeting the real estate market should be flexible.

Also at the forum, economist Zhao Xiao said that four years of regulation in the real estate market had brought it to a critical point, and that further tightening polices would cause problems. Zhao held a deputy-director post conducting economic research for the State Council, and his comments drew special attention.

But despite the calls for a goverment response, the Ministry of Construction (MOC) had yet to come down for or against "rescuing the market". Sheng Jianzhong, the director of Housing and Real Estate Department refused an interview with the EO. One official at the MOF Policy Research Center said the issue was too sensitive and also refused to comment. But another MOC official revealed that the possibility of taking such measures had been under research.

It was indicated that measures aiming to rescue the market would not just target real estate, and that polices meant to prevent chain reactions led by a fund shortage in the housing market were expected.

It is widely held that any market-saving move would expand the real estate bubble and have even more serious effects. But even real estate developers were not optimistic enough to believe the government would implement policies to turn back the clock.

Developers remained skeptical that banks would give more loans against the backdrop of inflation. While hopeful that the government would work to stimulate demand for homes, they were also not optimistic about a sudden lift on restrictions for second-home mortgage.

Developers predicted that the government would provide more support for down payments on ordinary houses and mortgages, and would push policies to deal with homes for low and medium-income groups first.

China's A-share market had approved certain real estate businesses to issue bonds, and requirements for foreign businesses investing China's housing industry had also been adjusted.