China’s home prices to fall later this year, says bank adviser

China’s home prices will decline later this year, with sales volume already falling following purchase restrictions by local governments, said Mr Li Daokui, an adviser to the People’s Bank of China (PBOC), the country’s central bank.

A 5- to 10-per-cent drop in home prices will be a “significant achievement”, he said in Beijing yesterday.

Cities such as Chengdu in south-western Sichuan province should be able to remove restrictions in a year-and-a-half because home prices are not as high as those in Beijing or Shanghai, he added.

Chinese Premier Wen Jiabao said over the weekend that China would “resolutely” press ahead with controls on the property market to curb speculation, reiterating a pledge to keep housing affordable.

The government will “severely punish” irregularities in the real-estate market, implement differentiated credit and tax policies, and hold local officials accountable for maintaining stable home prices, he said.

China is seeking to contain gains in housing prices after they climbed for a 19th month in December. The government extended curbs in January, including raising the minimum down-payment for second-home purchases, telling local governments to set price targets on new properties, and introducing taxes for homes in Shanghai and Chongqing.

The central bank also raised interest rates for the first time in three years. China should continue to raise interest rates slowly, Mr Li said, but he added that higher borrowing costs should not be used as the only tool to tame inflation.

China’s rising property market in the past few years was driven in part by “unreasonable” demand from speculators, Mr Qi Ji, Vice-Minister of Housing and Urban-Rural Development, said in Beijing yesterday, adding that government curbs had been targeted at that group of buyers.

Demand from speculators has left homes in cities such as Beijing vacant after they are bought, which are “crazy investments”, Mr Li said.

China will also build 36 million units of social housing or affordable homes in the next five years, aiming to cover 20 per cent of the market.

This includes 10 million units each in this year and the next, the country’s top planning agency, the National Development and Reform Committee, said last Sunday.

Source : Today – 11 Mar 2011

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