Chinese home prices at ‘turning point’

Chinese home prices are at a turning point and banks are concerned about a possible chain reaction if they fall by 20 per cent, the central bank said yesterday.

“Real estate investment growth eased, developers’ cash flows tightened, land transactions and prices fell,” the People’s Bank of China (PBOC) said, adding that “there are early signs that property prices are at a turning point.”

Chinese home prices dropped in October from September, official data showed, and a private survey on Thursday indicated that November would mark a third consecutive monthly fall.

Beijing signalled a shift in its monetary policy stance by cutting banks’ required reserves for the first time in three years on Wednesday. However, China’s top leaders, including Premier Wen Jiabao and Vice Premier Li Keqiang, recently reaffirmed they would not relax the two-year-long property tightening measures until home prices return to a reasonable level.

“Some banks think the banking system and developers can withstand home price falls of 20 to 30 per cent. But they are more concerned about whether a fall of 20 per cent in home prices will trigger panic sales and whether the government can take effective measures to control chain reactions afterwards,” the PBOC said.

China has to carefully manage the risk of a hard landing in the real estate sector and the broad economy, but too quick a relaxation will likely result in a retaliatory rebound in home prices, repeating the history of 2009, analysts said.

Source : Today – 3 Dec 2011

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