Deng Yusong, an expert from the Development Research Center of the State Council, suggested that multiple points of view should be taken into account when considering price cuts in first-tier cities like Beijing. As housing prices in Beijing have continued to climb at a fast pace for the past few years, it's now time to cool down. More importantly, the slowdown of real estate trading volume implies that factors propelling prices to go up may have changed.

The falling back of housing prices doesn't come as a surprise, argued Deng. First of all, the number of consumers with purchasing power has been greatly contracted by the shooting up of housing prices. The current control policies have also increased the cost for second homebuyers who make up two thirds of the total demand. In addition, banks are less keen to do business with real estate developers and homebuyers.

Zhu Zhongyi, Vice President of China Real Estate Association, believed China's real estate market is experiencing a period of gear shifting, structural adjustment and policy perfection. The market will head for rational and steady growth in the future, and the government will focus more on long-term market viability when releasing regulatory policies.

Effects

The deceleration in the real estate sector dragged down at least 0.7 percent of the growth of fixed assets investment in the first quarter, said NBS spokesman Sheng Laiyun when releasing first-quarter economic figures at a press conference on April 16.

Since the real estate industry involves an extensive industrial chain, its current slowdown will undoubtedly intensify downward pressures on the economy.

In some regions, housing prices have dropped remarkably and caused a cluster of systematic risks, resulting in local economies being caught in a vicious circle. Take Yuyao, a county-level city in Zhejiang for example. Since most local enterprises have had a finger in the real estate pie, the fact that the prices of some high-end houses fell by 40 percent has caused its real economy to be dragged to the brink of an abyss.

For this reason, local governments have shown an intention to bail out the housing market by relaxing regulation and control, taking measures such as reducing limits on property purchase and loan issuance, unveiling housing subsidies and encouraging rural populations to settle down in urban areas.

On the other side of the equation, the structural adjustment will help the macro-economy to smoothly release financial risks.

Xiang Zheng, a financial commentator, held that the excessive concentration of social funds on the housing market had severely bled the real economy. Exorbitant housing prices have hampered the formation of social capital, damped the enthusiasm to spend and invest in the industrial sector, and at the same time, undermined entrepreneurship and fermented speculation. The current slowdown may propel social funds to flow back to the industrial sector, shielding the real economy from the possible destructive effects brought about by a sudden collapse in housing prices.

In addition, local governments should keep a sober mind in the face of falling housing prices. "They will pay a heavy price if attempts are made to forcibly pull the housing market out of the mire. The best way is to comply with the law of the market and reduce the shocks as much as possible," said Xiang.

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