China's property market and the global economy

Banks followed government policy, implementing lending restrictions and raising interest rates and deposits on purchases of 2^nd and 3^rd homes.

Several cities adopted Wen Jiabao's recommendation of one new home per family, but the lack of affordable housing deters potential buyers.

Ineffective government policy

Beijing's policies to counter the oversupply of vacant overpriced property and related local government and state bank debt, are seriously flawed.

They failed to address affordability for owner/occupiers, and ignore implications of oversupply and investor "demand" in the top end sector.

It suggests not only failure to comprehend market dynamics, but a reluctance to implement measures that could devalue local and central government real estate interests.

Policy makers have ignored the fundamentals driving the market -

• development motivation driven by higher profits in top end housing
• investor demand for top end property
• local government support for developers of top end housing and grandiose projects

As long as developers focus on the top end of the market, investment options in China are limited to the property and stock markets, and state media support of the property boom, the strategies will be ineffective.

Prestige projects have the support of local government because they attract domestic and foreign investment, and boost local GDP.

Motivating developers and local government to focus on building affordable housing to meet mass-market demand housing on low profit margins will be a major challenge.

In parallel to the demand for affordable mid level housing, is the huge demand for low cost housing. This comprises towns and communities forced from their homes by desertification, water shortages and natural disasters, while other communities and farmers are displaced by major infrastructure projects. Housing and commercial project developments force the relocation of thousands of others.

The mechanics and effectiveness of the repossession policy, when considering government vested interest in real estate however, remains unclear.