Report: Price reduction is developers' rational choice

08:26, July 06, 2011      

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China's GDP growth will reach nearly 10 percent in 2011, and China's CPI will rise to almost 5 percent, according to a report recently released by the Institute of Economic Research under Renmin University.

In addition, the report also said that the real estate price adjustment has entered the "fatigue" period and the real estate market will not see a "hard landing." Exchanging modest price reductions for the warming property market is a rational choice for developers.

China's CPI to show an increase

China's economic growth will show a modest decline in 2011 under the influence of the "base effect" and the "transition shock," and China's GDP growth is expected to reach nearly 10 percent for 2011. In regard to inflation, China's CPI will show an increase in 2011 under the influence of factors such as the food and commodity prices, relatively relaxed liquidity, electrical power price reform, affordable housing construction and infrastructure investment as well as the carry-over effect. China's CPI growth is expected to reach to nearly 5 percent in 2011, said Wang Jinbin, assistant to the president of the School of Economics under Renmin University.

Regarding the "three wagons pulling China's economy," the report predicts that domestic consumption will increase by more than 17 percent in 2011 under high inflation expectations and the condition that people's incomes will not witness a rapid increase. Investments, pushed by the trade balance strategy, the effects of structural adjustments and the new layout and projects for affordable housing, will remain at a high level, and it is expected that the full social investment om fixed assets will increase by nearly 25 percent in 2011.

Under the trade balance strategy of "promoting imports and stabilizing exports," it is expected that exports will increase by more than 22 percent while imports will increase by nearly 30 percent in 2011. Finally, the total favorable balance of trade in 2011 will be about 125 billion U.S. dollars.

Wang believes that China's macro-economy has moved into the transformation period from the recovery period in 2011, and breaking through the dilemma of "controlling inflation and eliminating bubbles" and "stabilizing economic growth and preventing economic slow-down" will be the emphasis for making both short-term and long-term policies.

Reducing housing prices is developers' rational choice

According to the report, China's real estate regulation has entered a "fatigue period," meaning that the real estate market will not suffer a "hard landing." China's property market bubble is showing signs of disappearing, and the housing prices in certain large cities are expected to reach a downward inflection point in the second or third quarter. For developers, it will be a rational choice to modestly reduce housing prices to revive the property market.

The report said that the central government wants to ensure people's livelihood, local governments want more fiscal revenue, and developers want profits. The differences in their aims made the real estate regulation enter the "fatigue period."

At the same time, the overly high housing price to income ratio has become a major social issue in China. In the long run, the best way of reducing the ratio is to increase the people's income and stabilizing the housing prices simultaneously.

Overall, China will continue with strict real estate control policies for some time to come because the Chinese government will not allow the country's economy to be "kidnapped" by the real estate industry. It will be a mid- to long-term arduous task to deflate real estate bubbles and prevent them from spreading in certain regions. Therefore, it will be a rational choice for developers to modestly reduce housing prices to revive the property market.

By People's Daily Online

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