While the government is likely to fine-tune real estate policy as the economy softens in the coming months, it is not about to reverse tightening measures that it believes are critical to safeguarding China's long-run growth prospects.
Property prices have only just started to dip. Falls should turn much steeper, with investment in the sector also taking a clear hit, before the government takes its foot off the brake.
"It is, of course, aware that declining prices and investment are the likely result," said Xing Ziqiang, an economist with China International Capital Corp in Beijing.
"But so long as the economy is doing all right, slowing gradually with no severe unemployment problem, the government should be able to tolerate this."
That will disappoint those who thought they had already spied a U-turn in Chinese policy.
Earlier this week, Chinese real estate shares soared after a report that the government would relax a ban on mortgages for third homes.
This seemingly small change would have been explosive in its symbolism, implying that the government was flinching at the first signs of weakness in the property market.
With unusual alacrity, the banking regulator and the housing ministry published statements to deny the rumour.
"We don't see a loosening of policy in the near term because even though some cities have seen considerable price corrections, others haven't," James Xia, vice chairman of Chinese developer Evergrande Real Estate, said this week.
Nationwide, Chinese housing prices edged down 0.1% in June from May, their first monthly fall since February 2009 -- and the first real fruit of the tightening steps, which have included higher down payments and reduced lending to developers.
Deflating the bubble
Notwithstanding the wishes of some investors, if China were to stand down now from its property tightening campaign, it could prove deeply disruptive to the economy's development.
Just last week, Kenneth Rogoff, a former chief economist at the International Monetary Fund, warned that the country's housing market was a bubble.
Fleshing out this view, Yi Xianrong, an economist at the Chinese Academy of Social Sciences, a government think-tank, made the jaw-dropping claim that there are about 65.4 million empty apartments and houses in China's cities and towns, many of them bought up by people wagering on a constantly rising market.
Although Yi's estimate, based on electricity meter readings, was met with scepticism, it still served to underscore how the government has a ways to go to put the country's housing market on a more sustainable footing.
"We believe many analysts are underestimating China's determination in curbing property prices," Ting Lu, an economist with Bank of America-Merrill Lynch, said in a note.
A little more than two years before the end of China's decade-long political cycle, the current crop of leaders would shudder at the prospect of a bubble inflating in the property sector and bursting just before they leave office, Lu said.
Politics aside, the economic importance of getting it right is abundantly clear. The property sector makes up about 10 percent of national output and a quarter of capital spending.
The government knows it has to walk a fine line. Its zealousness in curbing a previous property construction boom bore fruit just as the global financial crisis reached a crescendo in late 2008, driving the Chinese economy to a near halt.
"China will not issue more tightening measures," said Yang Guohua, a property analyst with Oriental Securities. "The overall tightening policy will still be implemented, but there may be some fine-tuning in the second half."
Much will come down to how bank branches and local governments interpret rules.
After the banking regulator reiterated the ban on third-home mortgages, one commercial lender in Beijing told Reuters that such loans were absolutely forbidden. But a state bank in the booming port town of Ningbo said a third-home mortgage could be arranged, provided the borrower's credit record was clean.
Still, investment in the property sector, running at 38% over a year earlier, is sure to slow.
As that happens, the central government will spend more on public housing to pick up the slack and cushion the economy, said Sun Xuegong, a researcher in the National Development and Reform Commission, a powerful central planning agency.
"China has the fiscal scope and political will to speed up affordable housing construction and other projects to counter the risk of a sharp slowdown in private investment," Sun said. -- South China Morning Post