China Should Adhere to the Principle: ‘Houses Are for Living, Not for Speculation’

BEIJING (Reuters) – The state-run Economic Daily emphasized on Wednesday that China should continue to uphold the principle that "houses are for living in, not for speculation," especially amidst the ongoing economic downturn in the property sector.

This principle was first adopted by China’s top leaders in late 2016, coinciding with the implementation of stricter regulations in the property market. The removal of this phrase from a Politburo statement in July was interpreted by many as a signal that certain restrictions might be relaxed.

In its editorial, the Economic Daily reiterated the importance of maintaining this principle, stating, "It is not out of date." It pointed out that in several major cities, housing demand still surpasses supply. The editorial warned that if speculation in housing markets resumes, it could lead China back to an over-reliance on the real estate sector, which would negatively affect both economic and social progress.

During a key policy meeting in July, top leaders indicated that China would adapt and optimize property policies promptly, in light of significant shifts in the supply and demand dynamics of the market.

However, concerns about rising default risks among some developers and a sluggish economic recovery have led investors to anticipate more robust stimulus measures to revitalize the housing market. Yet, they were left disappointed when the central bank decided to maintain the five-year loan prime rate earlier this week. This rate is influential in determining mortgage pricing, and some analysts suggest that the central bank may be prioritizing the financial margins of lenders.

The Economic Daily also noted that property-related loans constitute 40% of banks’ total lending, while property ownership makes up 60% of household wealth in China.

Analysts at Goldman Sachs projected that the housing sector’s impact on GDP growth could drag it down by 1.5 percentage points this year, and they anticipate that the trend will remain slightly negative for the immediate future.