China's new stimulus package for the ailing property sector is vital to sustain economic growth in the world's fourth-largest economy in 2009, economists said.
If property investments continue to decline through 2009, increasing infrastructure investment alone would not be enough to push China's growth above 7 percent, Wang Tao, Head of China Research at UBS Securities, said Thursday.
According to the package unveiled Wednesday by the State Council, someone who has owned his home for two or more years can now sell it without having to pay business taxes. Previously, owners had to wait at least five years before selling houses tax-free.
If they sell their houses within two years, owners only have to pay taxes levied on the profit, not the sales price.
To boost homebuying, the government also allows people with "smaller-than-average" apartments to buy a second apartment under favorable loan terms. Size limits are different in every city.
This is the latest in government efforts to prop up the real estate sector. Previous measures include pledges to build more low-income housing and cuts of mortgage rates and down payments for first home buyers.
The moves are much more significant than those announced in the past few months, and combined with expectation of further significant reductions in interest rates in the next few months, they are likely to help stabilize the property market, said Peng Wensheng, Head of China Research at Barclays Capital.
The measures showed the government has added mass-market commercial housing, or lower-priced and smaller homes, to its original focus on public housing, Wang said in an emailed note.
"We think this is a necessary addition, since we do not believe that increasing public housing development alone can reverse the downturn in property sector construction."
The UBS Securities economist expected local governments to unveil more creative measures, including preferential land policies, to match the central government initiatives.
She also forecasted that property investment will start to recover in the second half of 2009, helping the economic growth to recover and possibly putting a floor on domestic demand for some commodities.
The policies should be positive for demand on construction materials such as steel and cement, Merrill Lynch economists headed by Ting Lu said in a research note.
Real estate investment makes up 9.2 percent of China's gross domestic product (GDP), so the policy supports projections for an 8 percent GDP growth in 2009, said Merrill Lynch economists.
Property prices in 70 major Chinese cities rose 0.2 percent in November from a year earlier. The growth rate was the lowest since the government published the figure in July 2005.
The ailing real estate sector, together with faltering demand for Chinese goods, has hit China's economy.
The GDP grew 9 percent in the third quarter, down from 10.4 percent in the first half and 11.9 percent last year. Economic data for October and November showed more downside risks to the economy.
China is targeting around an 8 percent GDP growth rate for 2009 despite challenges, Liu Mingkang, Chairman of the China Banking Regulatory Commission, told a financial conference on Saturday.
The GDP growth pace can't be allowed to slow to 6 to 7 percent as growth is needed to ensure sufficient employment and safeguard social stability, Liu noted.
In November, China unveiled a 4 trillion yuan (585 billion U.S. dollars) fiscal stimulus package through 2010 and cut lending rates four times since mid-September to avert an economic slump.
(Xinhua News Agency December 18, 2008)
