"officials have moved from trying to rein in prices to encouraging buyers"

Fascinating post in the WSJ about what the Chinese government is doing about the housing crisis there:

"With economic growth also slowing more than expected, officials have moved from trying to rein in prices to encouraging buyers. This week they announced tax breaks, smaller down-payment requirements and lower loan rates for first-time buyers.

If housing continues to tank, China may not be able to keep growth above the 8% rate the government has long regarded as the minimum necessary for prosperity. More than 80 million people are employed directly in the construction industry, so a prolonged downturn also threatens to lead to more unemployment and social unrest.

"The real-estate market decides what happens to the economy," says Paul Cavey, an economist for Macquarie Securities in Beijing. Infrastructure spending is still strong and likely to accelerate, but exports are slowing and are expected to deteriorate rapidly in coming months as world demand weakens. That makes housing the "swing factor," he says."

So, they are :

1) Giving tax breaks.

2) Lowering down payment amounts ( percentages )

3) Lowering the loan interest rate

What's interesting, of course, is that the government can do these things. China has been on a building boom, so a downturn in housing construction would sharply increase unemployment. How come they couldn't rein in prices?

I love this quote. Heard it before?

"Now everybody believes the price will go down. And the developers don't want to sell at a lower price. Nobody wants to sell, and nobody wants to buy," says William Xin, chief financial officer of China Housing & Land Development Inc., a developer in the western city of Xi'an."

I guess the attitude of the developers was the reason they couldn't rein in prices. They don't want to sell at lower prices. Does that mean they sense a near turn comeback, or were they betting on the government stepping in and helping buyers? I'm guessing the latter. Heard that before?

And this:

"China has gone through property slumps before, most recently in 2004, only to have the boom resume. At some point, people will start buying homes again, since there is plenty of real need for housing. But how long the current downturn could last is far from clear, since no previous housing slump also coincided with an international financial crisis.

"This is the big difference with previous slowdowns in the property market," says Ye Jianping, head of the department of land and real estate management at Renmin University in Beijing. "Before it was only domestic factors affecting the market, now there are international ones, too. If China's economy has problems because of the U.S. crisis, then there won't be confidence in real estate."

Here again, globalization also means worldwide downward pressure if large markets are in a downturn. Eventually, the housing market will heat up because it is driven by real demand in China.