Prof. Yao Yang: Realty Firms Should be Allowed to Lower Prices for Self-Rescue
China’s real estate investment contracted by 8.5% year-on-year in the first seven months of 2023 and posted negative growth for more than a dozen months in a row. Such sluggishness severely dragged down economic recovery, said Prof. Yao Yang, Dean of both NSD and BiMBA, in a media interview. He called for the removal of the regulations forbidding realty firms to sell apartments at a reduced price.
He estimated that about 10% has been shaved off the annual real estate added value over the last two years, amounting to a loss of 1.7% in GDP growth annually. Poor housing sales have led to private realty firm’s financing troubles. Some local governments have had to demand local SOES to purchase land and create a mirage of prosperity, as the land might not be used for housing development.
The problem has resulted from intentional policy adjustments, which comprise relatively radical and short-term solutions, i.e., tightening credit and dialing back realty expectations, said Prof. Yao. Once such policy is rectified, China will continue to see its economy grow and private entrepreneurs will regain confidence.
He said that in the short term, several measures should be taken, including relinquishing restrictions on real estate credit, restructuring (and letting go bankrupt) companies with liquidity issues due to poor operation, as well as resolutely ending all sorts of price controls on apartments and houses. He lamented that some local governments have stopped realty firms’ price reductions, deeming such market practice as a disruption to market order.
There exists a huge demand for housing, be it families working hard to get out of cramped living quarters or the tens of millions of farmers expected to move into cities in the next ten years, said Prof. Yao, adding that their purchasing power is firmly backed up by the still increasing household savings. They are keeping their purses zipped out of the expectation that the housing price will slide. And why shouldn’t it? Demanded Prof. Yao.