Thursday, March 11, 2010

China’s property prices rise, highlighting bubble risk

More pressure on govt to up stock of affordable housing, rein in speculation

China’s property prices rose at the fastest pace in 23 months in February, adding urgency to the government’s efforts to rein in speculation and increase the stock of affordable housing.

Residential and commercial real-estate prices in 70 cities climbed 10.7 per cent from a year earlier, the statistics bureau said on its website yesterday. That topped a 9.5 per cent gain in January.

Chinese officials are trying to reduce the risk of asset bubbles, resurgent inflation and bad loans for banks after flooding the world’s fastest-growing economy with cash to drive a recovery. Premier Wen Jiabao warned of ‘latent risk’ in China’s banks and pledged to crack down on real-estate speculation in a speech to the nation’s annual Parliamentary meeting in Beijing last week.

Today’s numbers ‘imply that there may be more upward pressure on inflation from the housing component,’ said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd here.

‘Social consequences will be negative, making it more likely that policy makers will introduce further administrative curbs in the real-estate market and in lending overall.’ Bank of China Ltd, the nation’s third-largest lender by market value, said on Feb 3 that it had reduced discounts for some mortgages, citing concern about rising property-market risks.

The Chinese government earlier told banks to raise interest rates on third mortgages and demand bigger downpayments for such loans, a person with knowledge of the matter said on Feb 2.

Industrial & Commercial Bank of China Ltd, the world’s biggest bank by market value, said on Jan 27 it ’stabilised’ loan growth after lending rose ‘relatively fast’ in the first half of the month.

Lenders shouldn’t ‘over-grant’ the loans that companies use to finance goods and services and must reasonably calculate their ‘real demand,’ the China Banking Regulatory Commission said in a Feb 20 statement. Banks extended 19 per cent of this year’s 7.5 trillion yuan (S$1.54 trillion) lending target in January.

To cool speculation, the government in January re-imposed a tax on homes sold within five years of their purchase, after having cut the taxable period to two years in January 2009 to bolster a then flagging market.

The government has raised banks’ reserve requirements twice this year and also pledged to cut new loans by 22 per cent to 7.5 trillion yuan. Chinese banks in January extended 1.39 trillion yuan of loans, more than in the previous three months combined, the central bank said on Feb 11.

Su Ning, a deputy governor of the Chinese central bank, said on March 8 that government measures to cool the property market have had an effect, causing transactions to fall and some prices to halt gains. There’s no need yet for any further measures, Mr Su said at a briefing in Beijing.

Some developers have already reported slowing sales.

China Vanke Co, the country’s biggest developer by market value, said on March 4 that February property sales fell 35.4 per cent to 2.51 billion yuan from a year earlier. It was the Shenzhen-based company’s first sales decline since March 2008.

Prices in the so-called second and third-tier cities may continue to keep rising this year, Vanke chairman Wang Shi told reporters here on March 8.

‘Values in the first-tier cities are adjusting, and we need to observe further,’ he said. ‘There are too many uncertainties’ in the global market, he added, declining to be more specific about his comments on prices.

Guangzhou R&F Properties Co, the biggest developer in the southern Chinese city, said March 1 contracted sales fell 11 per cent in February from a year earlier because of slower activity during the month of the Lunar New Year holiday.

Still, other developers including Evergrande Real Estate Group Ltd, reported higher February sales. Shimao Property Holdings Ltd also said contracted sales revenue in the first two months more than tripled.

Shanghai, mainland China’s financial hub, plans to implement more measures to control property prices, such as introducing a policy for the leasing of public housing, the city’s Communist Party chief Yu Zhengshen said on March 7.

Source: Business Times, 11 Mar 2010

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