Will bail-out policies save the property sector?

China’s real estate market has felt the chill after years of galloping expansion. With both sales and prices stalling in recent months, some local governments have started to devise bail-out policies to prevent the market from collapsing.

Since April, six cities have announced stimulus policies targeted at the real estate market. In the latest case, Zhengzhou of Henan province said home buyers can have access to government-supported guarantee for their bank loans. The move aims to provide incentives for both home buyers and banks as banks have become very reluctant in extending loans to home-buying since last year.

Normally, when the local governments started to lend a hand, it means the property market has become very problematic. Otherwise, government intervention would be unnecessary.

Indeed, in the first quarter, property sales declined 5.2 percent, new construction plunged by 25 percent and unsold completed properties rose 23 percent over the same period of the previous year, according to the National Bureau of Statistics.

Many economists expected the weakening trend to continue, with the most pessimistic China watching warning that the bubbles are already starting to bust.

For developers, the government could be their last resort. The Chinese government has established its fame as the savior of the property market after it released massive stimulus package in late 2008 to successfully bail out the real estate sector and the national economy as a whole.

Although the central government is yet to announce specific policies to aid the growth of the real estate market, the fact that some local governments have taken the lead signifies the possibility that China may ultimately have to loosen its property policies to prevent the chain effect of a slumping housing market from happening to affect the national economy. After all, the sector accounts for about one-fourth of the nation’s total fixed-asset investment.

But will such a bail-out continue to work this time?