Why Expecting Property Prices To See A Great Fall Is Only Wishful Thinking

Based on their study of the China housing market, four Harvard University scholars have concluded that the sky-high real estate rates could be sustained only if the government “radically” controls new launches.

"In many respects, China looks like a classic housing bubble ... Prices have soared; new construction is enormous; vacancies are large and pervasive. It is tempting to view these events from afar and conclude that a price drop is imminent … but it is far from certain,” they wrote and were quoted in a Bloomberg report.

The fallout of such of move would, however, be hard hitting.

It would cause hindrance to the government's plans to urbanise 100 million Chinese rural citizens by 2020. Those working in the construction industry would lose jobs or see a wage reduction. And, the country "would lose the productivity advantages associated with rural residents shifting to cities".

"Developers and homeowners have been slow to reduce prices while potential buyers are holding off because of sticker shock or hope for discounts. Economists expect the standoff will last through the end of this year before weak sales gradually drag down home prices and start to weigh on investment early next year, " said a Bloomberg report.

On the other hand, in Hong Kong, authorities are seen resorting to desperate measures to cool prices in one of the world's least affordable market. Recently, the nation-state increased the stamp duty by 15 per cent for all residential transactions to tame demand, except for first-time buyers who are also permanent residents.

"We have to prevent the risk of property bubble from worsening, which in turn can threaten our economy and even the stability of the financial system,” Bloomberg quoted Financial Secretary John Tsang as saying after the announcement was made.

This move again is largely aimed at controlling demand rather than bringing down property rates.

So, why not let the prices fall instead? Why take the pain of maintaining prices when all a buyer wants is a fall? The logic behind retaining property prices across major Asian nations is simple: a mighty fall of property rates would lodge the respective economies into recession; the personal benefits of such a fall would be too short lived to put the overall economy at risk. This is a reason why we can expect tweaking in other areas, be it new launches or government regulation, property prices across Asian economies, even if quite high, are here to stay that way.

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