Another reason is financial risk management on the part of financial holding companies anxious about how much capital they have tied up in the property market, which are thus restricting the amount of available money for housing loans. These companies are also worried that the shortage of capital available will result in people struggling to pay their mortgages, and therefore to bad debts, the minute there is an upturn in the housing market. They are therefore limiting the number of mortgages they are approving and raising mortgage rates. Finally, with the transparency of the actual selling price property value reporting, it has become a buyer’s market, unlike in the past, when the market was dictated — or to some extent distorted — by sellers artificially inflating prices. In the future, the asking prices of properties will be more reflective of their actual value.
After taking all these factors into account, what is the general public to expect? Should prospective home buyers assume that prices are not going to drop and think more in terms of sharing apartments with others for the time being? How about investors? Should they take a gamble and buy up properties in the hope that the market will soon bottom out? If those buying for investment purposes think the market will soon improve, they should act. If not, they should hold back for now and avoid bailing out property owners and other investors at their own expense. For those unsure which way the pendulum will swing, the best policy is perhaps to sit tight and watch how things progress and wait until things become more apparent before taking the plunge. Property is, after all, a major purchase, and opting for the wrong approach will have repercussions not just on one’s finances, but on one’s future, too.
And what is the government to do about the housing market, given the unfavorable prevailing economic climate and a GDP growth rate that might not even reach 1 percent this year? Past academic research has shown that the real-estate market cannot be relied upon to be an economic driver. It would therefore be inappropriate to divert preferential subsidies to the housing market. To do so would do nothing to stimulate economic growth, and it would devote too many resources to that sector and result in large amounts of unused properties, wasting resources that could be better spent elsewhere and denying them to other sectors, thereby contributing to further recessionary pressures. The government would be well-advised to take this opportunity, when the housing market is at a turning point, to take steps to promote long-term, systemic stability in the sector, including strengthening the rental market, undertaking ongoing housing tax reform and providing adequate investment channels. Not only will this ensure that the housing market gradually settles down to a sustainable level, it will also prevent the emergence of a property bubble that would only be more bad news for the economy.