China’s property curbs ‘to stay’ as OECD warns of risks

Measures introduced to control China’s real estate market are at a “critical stage” and the government should keep the curbs, Chinese Vice-Premier Li Keqiang said, Xinhua reported yesterday just hours before the Organization for Economic Cooperation and Development (OECD) warned that property risks were “overshadowing” the economic outlook of the world’s second-largest economy.

Mr Li, who is in line to replace Mr Wen Jiabao as Premier next year, also called for increased efforts to construct and “fairly distribute” affordable housing to low-income families, Xinhua reported.

Faced with runaway property prices, the Chinese government intensified property measures this year, with limits on mortgages and restrictions on home purchases in about 40 cities, and said it aimed to build 10 million affordable housing units to boost supply.

The measures, combined with rising global economic uncertainty, hit the market hard last month, when China’s home prices fell in 33 of 70 cities monitored by the government, the worst performance this year.

Some brokerages including Barclays Capital and asset managers such as CBRE Global Investors had earlier forecast that falling home prices in cities including Beijing and Shanghai may prompt the government to roll back some of its measures.

But UBS said in a report last Friday: “We expect the government to continue its current purchase and credit restrictions instead of easing them soon, which should constrain property market activity in coming months … The most important factor underlying this outlook is policy.”

UBS expects property prices to drop by 10 to 15 per cent in first-tier cities next year, and by 5 to 10 per cent in other cities.

The Paris-based OECD said in its bi-annual report on China yesterday: “While the exit of small property developers would not pose a problem, the failure of large promoters could put some bank lending at risk, perhaps triggering negative chain reactions. A key risk is an overly quick liquidation of unsold property.”

China’s economy will expand 8.5 per cent next year, down from 9.3 per cent estimated this year, as export growth is pulled down by weak demand and a decline in the nation’s competitiveness, the OECD said. But government housing projects can help to support construction and moderating inflation may allow China to cut interest rates from the middle of next year, the OECD added. China is not a member of the OECD.

Source : Today – 29 Nov 2011

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