China housing slump sparks fears for economy

June 16, 2014 - 9:11:57 am

BEIJING: Six months ago, China’s housing market was so red-hot that Feng Xiaowei, a sales manager at a real estate agency in the eastern city of Hangzhou, rarely took a day off.

Then lending and sales curbs imposed by the government to cool soaring housing costs started to bite and business evaporated. Now Feng and the seven salespeople he supervises spend the day playing cards.

“There are no buyers,” said Feng, 24. “We take three days off a week. We go out for barbecue and play poker.”

China’s house prices have marched higher for 15 years, helping to drive an economic boom but making home ownership unaffordable for many families. Now a slump is dragging down economic growth that already was slowing. Some analysts worry banks might be shaken if developers default on loans.

The slowdown should fit the Communist Party’s ambition to nurture growth based on domestic consumption instead of trade and credit-fueled investment. But the timing is awkward, with demand for China’s exports and growth in consumer spending both weaker than expected.

That is forcing the government of President Xi Jinping into a politically delicate balancing act. It wants to discourage speculative investment and increase supplies of low-cost housing without allowing prices to fall, which would alienate prosperous city dwellers, a pillar of ruling party support. Banks were ordered in May to prop up the industry with more lending.

“They don’t want to get into a situation where prices are going into negative territory,” said economist Brian Jackson of IHS Economics. “There are stability concerns related to that on the social side and also on the financial side.”

Nationwide, sales fell 7.7 percent in the first quarter from a year earlier to 1.1 trillion yuan ($176bn), according to government data reported by the official Xinhua News Agency. E-House China R&D Institute, a research firm in Shanghai, said the volume of unsold new housing in 35 cities rose in May to a five-year high.

Some buyers have staged protests after seeing developers cut prices of similar units in the same complex by up to 20 percent from what they paid months earlier.