(Yicai Global) Dec. 2 -- China’s real estate sector has had a downward trajectory over the past few months after a number of debt defaults by leading property developers. Policies should be moderately adjusted, but must not be loosened too much, said the chief China economist at Japanese securities brokerage Nomura.

Various gauges in China’s realty market have taken a sudden turn for the worse in the past few months, said Lu Ting. This can drag the country’s economic growth down by over 4 percentage points. There may be more bond defaults by developers in the next few months, if the current regulatory policies are not modified.

It is necessary to guarantee the normal review and approval of fundraising by well-qualified real estate developers and family mortgages in the short term, in order to avoid systematic financial risk, Lu said. However, policies cannot be blindly loosened as it could lead developers, residents and financial institutions to anticipate housing prices to rise, resulting in a retaliatory rebound in prices, he added.

In the long term, China should promote the balanced growth of commercial property and affordable housing through supply-side reforms, so as to satisfy the public’s housing demand and break the cycle of repeatedly relaxing then tightening real estate regulations.

The government should expand the supply of new houses and land in popular cities, loosen restrictions on pricing and gradually bring in building taxes. Specific groups, especially migrant workers and university graduates, should be granted preferential policies of lower down payments and mortgage rates, Lu said.

Editor: Kim Taylor