By Liangping Gao

BEIJING (Reuters) – China’s property slump is likely to persist into 2022’s first half. Home prices and sales will fall as tight credit policies, and a looming tax on property, dampen the demand.

Property, which is a major driver of global growth, has seen a sharp slowdown in recent months. Sentiment has been shaken by strict regulations and a growing liquidity problem that has affected some of the largest and most indebted developers in the country.

In August, the forecasts of property prices and investment in homes were less optimistic than previous polls.

The average house price will fall by 1.0% over the first half 2022 according to 14 economists and analysts surveyed from Nov. 26 through Dec. 1.

The 2021 forecast for home prices is 2.6%. This compares to a prediction of 3.5% from the last poll, and follows a rise of 4.9% in 2020.

According to Chen Shen of Huatai Securities, “The downtrend in home prices is emerging” because of tight quotas for home loans, concerns about property taxes, and low demand.

According to the demand side of the equation, sales of property by floor area will plummet 16% in 2022 compared to a 27.7% increase in the same time period last year.

It is not looking good for the supply side. Property investment saw a drop of 3.0% over the first six months, while it rose by 15% in the second half.

Rapidly declining conditions within the property industry have led to speculation that policymakers could relax restrictions on buyers or developers, as well as reduce interest rates if there is a slowdown in economic growth.

However, most China-watchers believe authorities will continue to adhere to current curbs, even though they tweak regulations to allow for marginal loosening credit policies.

Zhao Ke, an economist from China Merchants Securities said that cities will loosen restrictions on loans, purchases and sales. He also stated that curbs to lowering selling prices are likely to be lifted based on local circumstances.

Recently, policymakers have made some changes to aid genuine home buyers. Some local authorities also took steps to relieve a financial crisis facing developers.

Last week, Chengdu in China’s south-west issued a notice to developers to make sure they receive funding from new loans and properties that have been presold.

Four of the fourteen interviewees expect that pilot testing for a property tax will take place in wealthy areas like Shanghai or Shenzhen by this year’s end, while eight believe they will become law in 2022.

How would a property tax affect the home price? The tax rate will determine the impact on home prices, although most people believe it would depend on it. However, it should be expected that it will reduce the risk of high-priced homes in the near term.

Huang Yu, Vice President of China Index Academy (a Beijing-based property research institution), stated that “new homes could see a gradual fall in prices” and “sales by volume may be affected” after the public announcement of real estate tax testing.

Chen, Huatai Securities said that it could lead to an increase in supply or decrease speculation buying. This would put downward pressures on home values.

Many agree that the price of property will rise over the next 2/3 years as President Xi Jinping implements his “common prosperity”, campaign, and government slogan: “Houses (are) to be lived in and not for speculation”.