Looks like the measures implemented by Chinese authorities are bearing fruit. Property market could develop in a more sustainable rate and avert a severe bubble burst.
BEIJING, July 12 — Chinese property prices in June recorded their first monthly fall since February 2009, providing further evidence that a government drive to let the air out of an inflated market is working.
Average prices in 70 cities edged down 0.1 per cent from May, lowering the annual property inflation rate to 11.4 per cent in June from 12.4 per cent in the year to May and April’s reading of 12.8 per cent, the National Bureau of Statistics said today.
Coming on the heels of much slower import growth and a controlled moderation in bank lending, the figures reinforced the conviction of many economists that no further policy tightening is on the cards.
However, with surprisingly resilient exports offsetting softer domestic investment, the consensus is that Beijing will not be rushed into relaxing policy either until clearer signals emerge from the all-important property and construction sectors.
“Currently the Chinese property market’s at a crossroads. It’s a game of who blinks first,” said Dong Tao, chief China economist at Credit Suisse in Hong Kong.
The government, determined to squeeze out speculators, refuses to back down by reversing curbs imposed in April; developers don’t want to waver because they paid high prices for land last year and have a bullish long-term outlook; and home buyers are sitting on the sidelines, Tao said.
“One of these three key players needs to blink first and change their stance,” he said. “I see policy in a pause mode. Whether that lasts till the end of the year is not entirely clear to me. It all depends on who blinks first.”
Engineering a soft landing in the housing market is critical.
To prick a bubble that, by common consent, had developed in big cities such as Beijing and Shanghai, the government in April raised down payments, ended mortgage discounts, tightened rules on loans to developers and made it harder to buy multiple homes.
Although annual property inflation has subsequently fallen for two months in a row, underlying demand remains strong and few home buyers expect a sharp decline in prices, said Zhang Huadong, a property analyst with Xiangcai Securities in Shanghai.
“It’s very unlikely that the government will relax its policy of curbing demand,” Zhang said. “If — and I mean if — policy were relaxed, there would be another surge in property prices. It would be a disaster for the market.”
The Securities Times reported today that banks in major cities, including Shanghai and Shenzhen, had resumed making mortgages on third homes, in what the newspaper took as a sign that the government was easing its grip.
But Tao with Credit Suisse and Liu Kun, a property analyst with Great Wall Securities in Shenzhen, said banks were just probing Beijing’s determination to implement its curbs firmly.
“The government is unlikely to announce measures to adjust its previous policies until the first half of next year,” Liu said.
Economists at Bank of America Merrill Lynch agreed.
“Banks always like to test the resolve of policymakers. We are glad to see more people are coming around to our view that there will be no policy reversal and policy easing very soon on the property front,” they said in a note to clients.
Bringing prices down is a political imperative for the ruling Communist Party.
Buying an apartment in a big city is now beyond the reach of ordinary people, reminding them of the inequalities that blight China and thus posing a potential threat to the social harmony that is President Hu Jintao’s ideological leitmotif.
Yet the government does not want to squeeze the life out of a sector that makes up 10 per cent of national output and 25 per cent of fixed asset investment and drives sales of everything from furnishing to electrical appliances and even cars. Construction also accounts for half of China’s steel consumption.
To square the circle, the government is ramping up the construction of low-income housing, though many analysts doubt it can meet its ambitious targets.
Zhang with Xiangcai Securities said he expected additional measures to boost the supply of property. “For instance, the government will force property developers to build on land they have purchased as quickly as possible,” he said.