Intensified efforts by the government to cushion the declining property market are essential to keep the country's investment up and unemployment down.

However, if the real estate sector is to serve as a stable and sustainable growth engine for the economy, stopgap measures to boost the housing market are not enough. Developers' financing difficulties and the inadequate supply of affordable housing for low-income families call for long-term solutions. The sooner these are introduced, the better.

The property sector contributes to a quarter of the country's fixed-asset investment and hires more than 70 million workers. It is thus entirely befitting that the Chinese government has responded swiftly to the current slump in the housing market by cutting property transaction taxes and slashing mortgage rates.

Such stimuli may slow the fall of house prices but will not stop it. After several years of runaway price hikes, the property market is undergoing an inevitable correction to squeeze unhealthy out bubbles that can otherwise cause huge damage to the national economy.

The course correction will be painful both for property developers and those local governments that depend too much on revenue from selling land to the former. Some officials had thus tried in vain to set a floor for local housing prices.

Fortunately, the central authorities did not throw their weight behind such administrative intervention but urged developers to adjust prices to promote sales. Such recognition of the market's role in balancing supply and demand will facilitate, not frustrate, the correction of the housing market.

More important, at a press conference held yesterday, policymakers reiterated the government's obligation to provide housing subsidies for low-income groups. Also, they revealed that they are formulating a plan to allow developers to raise funds through real-estate investment trusts (REITs).

Clearly, the central government has realized the necessity to separate the government-led supply of affordable houses for the poor from the market-driven supply of commercial residential buildings. Without a clear-cut division between the two types of houses, consumer sentiment can hardly improve as supply of affordable houses is expected to soar.

As to the introduction of REITs, a diversified channel for financing is long overdue for Chinese developers. Their dependence on bank loans has not only limited their development, but also given rise to a considerable risk for the banking system.

The current situation makes it a good time to adopt all these measures. They may prove to be the key to the long-term, healthy growth of property developers and the real estate market.

(China Daily 01/07/2009 page8)