By Wang Lei (汪雷),

a commentator from EO

Economic Observer Online

Original article: [Chinese] 

If house prices fall hard, both property developers and ordinary people will lose out; people who cannot afford housing are relatively poor and will probably lose their jobs if there is a downturn in the real estate sector. How can they afford housing, once they’re unemployed? This, at least is the argument of Lu Zhengwei, chief economist at Industrial Bank.

It might just be the view of one economist, but it has stirred up a lot of controversy. In an EO online survey some 60,000 readers responded, with 64% opposing him.

Zhengwei’s shares the perspective of a real estate industry that is holding the whole economy hostage. Since 2008, decision makers have tried repeatedly to regulate the industry, and each time the response has been “house prices cannot fall or it will destabilize the whole economy.”

Real estate developers account for 6.6% of gross domestic product; the main source of revenue for local governments are land transfer fees and tens of trillion yuan in bank loans are linked to the sector. Regulation hasn’t had much effect on house prices.

But the situation is different this year. The government has imposed the strictest restrictions on property purchases so far. If targets for public housing construction are met, and China’s economic transformation continues, then the wider economy will soon escape from its dependence on the real estate industry.

The argument that “ordinary people are also afraid of a fall in house prices” shows property developers’ twisted logic. They appeal to home owners to boost pressure on the government to support housing prices, but most of those people bought houses to live in, not to sell on. Multiple-house holders, who can treat real estate as an investment, are a small part of public opinion, and the constituency for property developers and their spokesmen is far smaller than they would have us believe.