Restore the overall economyIn its first substantial step to reinvigorate the slow-moving economy, the government has announced a real estate stimuli package, comprised of significant deregulation, tax easing and incentives to get people to both buy and sell in the housing market. The all-out nature suggests the government decided to normalize the frozen sector rather than propping up real estate prices.
One of the most tempting and effective measures would be an extension of loans for first-time home purchases. The measures to control supplies of public housing to boost the private market will also be helpful. The package includes all possible policies, including easing of acquisition and sales taxes, lifting restrictions on multi-house owners and redevelopment and improvement in the housing sales system.
The drastic moves, so much stronger than what the previous administration tried, prove the alarming state of the real estate market. The market has been in a comatose state for a long time. Annual housing trade volume plunged to 270,000 transactions last year, a 60 percent drop from 2006. The previous administration introduced various stimuli measures but with little effect. Families have been weighed down by mortgage burdens, losses in housing prices and hikes in rents. Mortgages that take up most household loans pose one of the biggest risks to the financial industry and overall economy.
We understand the inevitability of extreme measures in times of crisis. But we are nevertheless doubtful they will be effective now. The market has passed the stage of being woken up by deregulation and financial stimuli. The real estate slump is a byproduct of a lethargic economy that has been underperforming its growth potential for the third consecutive year. It was a lack of confidence in the economy that killed the real estate market.
Economic prospects this year are even gloomier. The government has lowered its economic forecast to 2.3 percent from 3 percent. None of the growth engines - consumption, corporate investment and exports - appears to be working. Consumer and corporate spending are mired in a deep depression, exports are flat and job prospects are hardly better. Without any hope in improvement in incomes and jobs, there will not be many who think of buying new homes.
The government has a more urgent job to do. It must endeavor to restore the overall economy. To do so, it must rebuild public confidence first. Citizens are quickly losing hope in the government. The economy should come first.