China home prices fall further, ‘likely to continue on downward trend’

Chinese home prices fell last month from January for a fifth consecutive month and are expected to continue heading south in coming months, underlining the success of Beijing’s long campaign to cool property market speculation.

Average new home prices across China fell 0.1 per cent last month, versus a drop of 0.2 per cent in January, according to Reuters’ weighted home price index based on data announced by the National Bureau of Statistics (NBS) yesterday.

The NBS said new home prices fell in 45 of the 70 major cities it monitors and remained flat in 22 but rose in the cities of Jinan, Xining and Baotou.

In January, they stopped rising in all 70 cities from a month earlier.

In year-on-year terms, home price declines spread to 27 cities last month from 14 in January. As a result, they remained unchanged on average last month for the first time since China’s property tightening campaign started in late 2009.

That compared with an annual rise of 0.5 per cent in January.

“China’s property prices will likely continue their downward trend, likely going into the second half of 2012 and until policies are altered,” said Mr Mark Budden, China-area leader of EC Harris, a global built-asset consultancy.

Chinese Premier Wen Jiabao on Wednesday told a news conference that he would stick to property-tightening measures during his last year in office to deflate asset bubbles that would hurt the broad economy if they burst.

“I can now tell everyone very clearly that home prices are still far above the reasonable level. Therefore, we must not relax tightening,” he reiterated, dousing hopes of a letup in his government’s property tightening stance.

His comments dimmed the outlook for Chinese developers – many of whom are suffering sliding sales and an acute funding shortage – and sent the country’s property shares down by 5 per cent over the following three trading days.

Still, Beijing does not want to see the market crash and has started fine-tuning its policy. Banks are increasing mortgage loans for first-time home buyers and offering lower rates. Regulators are also making it easier for developers building normal housing to get bank loans.

On the ground, some local governments have tried to loosen curbs but the central government has so far pushed back such efforts by Shanghai and several other cities.

“Premier Wen’s statement can also be seen as a signal to local governments who have been trying to ease policies,” Ms Wang Tao, an economist with UBS in Hong Kong, said in a note to clients on Friday.

China’s property sales fell 20.9 per cent in the first two months of this year from a year earlier, the NBS said on March 9.

Although transaction data from private real estate consultancies pointed to a slight pickup in recent weeks from a trough during the Chinese New Year, industry observers widely expect it to be short-lived.

“Before the easing or eventual removal of the restrictive policies in the property sector, further softening of home prices and reduction in transaction volume of sales will continue,” China Overseas Land and Investment, the country’s No 1 developer by market value, said in a statement on Thursday.

China still has strong pent-up demand for housing, with its rapid urbanisation and rising household income. But tightening measures have blocked access to housing market for some families and kept others waiting for even lower prices.

Inventories of unsold homes in China’s big cities such as Beijing and Shanghai have hit record highs and developers have slowed the pace of land purchases, underlying slower growth in real estate investment this year.

China’s real estate investment accounted for 13 per cent of GDP last year and affects more than 40 other industries.

While the private-sector real estate market will remain weak this year, economists expect Beijing’s affordable housing campaign to boost construction and help prop up the economy.

The US$316-billion (S$397.4-billion) scheme will see China start construction of seven million cheap homes this year and finish five million. Last year, it started 10 million units and completed 4.3 million.

“With social housing playing a larger role in overall property construction this year than ever before, the government may afford to keep a tough stance on property policies for longer,” said Ms Wang.

She added that affordable homes “will provide an indispensable contribution to overall property construction and help avoid a hard landing in China”.

Source : Today – 19 Mar 2012

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