China continued its capitalist policy trend, announcing over the weekend more details on its proposed real estate stimulus package, which will solve the housing problem for 7.5 million low-income urban families and 2.4 million households in "shantytowns" in the next 3 years. In summary, the government will be dramatically lowering taxes on sales and encouraging broader home ownership.

Specifically, the package outlined five points: (1.) Building more homes for low-income families, (2.) Encouraging home buying, (3.) Supporting property developers to deal with the changing market, (4.) Enhancing the role of local governments in stabilizing the real estate market, and (5.) Improving surveillance on the property market.

The plan will help incentivize new buyers. Under the new package home owners for at least 2+ years can sell their homes without having to pay taxes. This is a change from the previous 5+ year rule. And if owners sell their homes within 2 years, they will only pay tax on profits from the sale, not the actual sales prices.

Further, the Chinese government said it will work with commercial banks to extend credit to developers based on property demand. Already the government has encouraged people with “smaller-than-average” apartments to buy a second one.

Property prices in 70 major cities in China rose 0.2% in November Y/Y, the lowest numbers since the government began publishing the figure in July, 2005. A total of 2.7 Trillion Yuan (387.5 Billion USD) was injected into real estate development in the first 11 months of 2008, up 22.7% Y/Y. Yet total sales were down 18.3% Y/Y, with residential sales down 18.8% Y/Y during this same period.

We continue to be long China’s ETF FXI and applaud the government's proactive capitalist policy making.

Matthew Hedrick