The economic slowdown is leaving new housing developments empty in China’s cities, complicating the government’s relief efforts, according to this report in the New York Times:
Banking experts and economists expect this to produce a surge in loan defaults for Chinese banks by next spring or summer that will erode the high profits banks have been earning in the last three years although few banks seem likely to fail. But the effects of the bust could extend far beyond banking, complicating economic policy-making.
For that reason, the Chinese government announced a series of measures late Wednesday night to support real estate prices. The central bank told commercial banks to reduce mortgage rates and down payments for borrowers seeking their first mortgage. The finance ministry also reduced the stamp tax on real estate purchases, effective Nov. 1, but only for first-time home buyers acquiring an apartment of less than 90 square meters, or 969 square feet.
Real estate professionals and economists said the measures were too narrow to reverse growing gloom in China’s housing market. Prices have already fallen by up to a third in some neighborhoods here in Shenzhen in southeastern China, the city most affected by the real estate bust.
The Economist also reports on the effects of the housing bubble on the middle class:
Homeowners in a middle-class district in northern Beijing are angry. The developer of their block of flats has slashed the prices of new flats now on sale. China’s housing market, barely existent a decade ago, is undergoing its first big downturn after years of boom. The earlier buyers want their money back.
For several years China’s leaders have been trying gently to deflate a housing-market bubble pumped up by huge demand from a fast-growing middle class with few other investment opportunities. In the past few months their efforts have begun to pay off. But economic growth has also begun to slow, the stockmarket is far below last year’s peak and worries are growing about the impact of the global financial crisis. Weaned in unremitting good times, China’s fledgling middle class, whose support the Communist Party sees as crucial, is entering uncharted territory.
