A decline in China’s property prices may soon rise again

The People’s Bank of China has cut banks’ reserve requirement ratio by 0.5 percentage points to spur lending and stabilize growth.

Analysts said more cities in China saw property prices decline last month on an annual basis, but rebounding sales could push up prices in the coming months.

China Daily reported that out of 70 major cities tracked by the government, 46 recorded a year-on-year price fall in April, eight more than in March, according to the National Bureau of Statistics.

On a monthly basis, a price fall was recorded in 43 cities, while 24 remained flat. In March, 46 cities posted a price decline from the previous month.

According to Nichole Wong, regional head of property research at CLSA Research Ltd., after after a buildup in supply starts to gradually ease a there may be a fourth-quarter rebound in property prices after a buildup in supply starts to gradually ease.

“We expect the property price to increase 5 per cent in the fourth quarter, after a flat second and third quarter,” said Wong. “As both first-home buyers and property developers find it easier to get bank loans, we expect property sales will pick up.”

Zhang Xiaohong, a senior official with the Ministry of Housing and Urban-rural Development, said that the real estate market correction will continue in the coming months.

In 2012, China began taking steps to cub property prices including tighter lending policies, higher down payments, ban on third-home purchases, property tax pilot plans, and construction of more low-income housing.

Even after economic growth slowed to a near three-year low of 8.1 per cent in the first quarter government officials have continued to state that the curbs will stay in place.

Liu Feiguo, vice president of E-Commercial China said that even though the government will not ease the current curbs it will be hard to add new ones.

The April home price data fueled concerns that a cooling property market will accelerate China’s economic slowdown, as property development investment accounts for more than 10 per cent of GDP and affects many other industries.

According to China Daily, these concerns pulled the benchmark Shanghai Composite Index down 1.44 per cent to2,344.52 points.

The State Information Center said the property curbs, combined with sluggish external demand, will further weigh on the economy in the second quarter. It forecasted that GDP growth will slow further in the current quarter to just 7.5 per cent.

The center said that because of a sound employment situation, it is unnecessary to worry too much about the economic slowdown.

The People’s Bank of China has cut banks’ reserve requirement ratio by 0.5 per cent to urge lending and stabilize growth. The central bank lowered the RRR in November and again in February.

Beijing’s property sales, including new and pre-owned homes, saw a strong rebound in the first half of May, according to real estate brokerage Century 21. It said 7,132 apartments were sold in the first 15 days of May, up 103 per cent year-on-year.

“Property developer’s strategy of cutting prices to stimulate sales did work. Also, potential buyers’ sentiment improved,” said Su Ri, senior analyst from Century 21.

According to China Index Academy, the research unit of the country’s largest real estate website SouFun Holding Ltd, about 60 per cent of the cities it monitors saw a rebound in property sales last week on a yearly basis.

China Resources Land Ltd plans to launch the second phase of its Spanish-style villa project in Beijing next month, and prices will probably be more than 20 per cent above those on the first phase launched in November.

“Market sentiments did improve compared with the end of last year. said Gao Xing, marketing director of China Resources Land (Beijing) Co Ltd. “And the number of our potential buyers, all of them buying for their own use, increased rapidly in recent months.”

Capitaland is planning to launch a new building along Beijing’s eastern Fourth Ring Road at a higher rate per square meter than its previous building launched in 2012.

Hu Jinghui, a senior real estate expert and vice-president of 5i5j Real Estate, said though the RRR cuts did not target the property market, the eased liquidity will help first-home buyers acquire mortgages and stimulate sales for owner-occupiers.

According to CLSA research the turnaround time for existing inventories is expected to decline from 9.6 months to 7.8 months over the course of this year.

“This amount of inventories will in fact keep property developers in competition with each other, thus helping prevent the property prices seeing a strong rebound,” said Wong.

The CLSA research stated that the country’s gross sales in, in terms of floor area, will grow nine per cent year-on-year.

Andy Rothman, China macro strategist for CLSA, said the residential property market remains the key risk for the country’s economy this year.

In the first quarter new property investment growth slowed to 18.7 per cent from 23.5 per cent according to NBS.

“Though first-home buyers have found it easier to get mortgages from banks and could obtain favorable mortgage rates, the government still needs to do more to stimulate first-home purchases,” said Rothman.

Source: PropertyReport – 2012 May 22


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