BT : China's May property price surge second highest on record

Business Times - 11 Jun 2010

China's May property price surge second highest on record

Govt measures so far have affected only transaction volumes: economist

(BEIJING) China's property prices rose at the second- fastest pace on record in May, showing little sign yet that the government crackdown on speculation will work to avert an asset-price bubble.

The 12.4 per cent gain compared with a record 12.8 per cent increase in April from a year earlier, the National Bureau of Statistics said on its website. The data series, covering 70 cities, began in 2005. The value of sales slid 25 per cent.

Yesterday's figures, along with data showing a bigger jump in exports than forecast in May, signal the dangers of maintaining stimulus measures adopted during the global recession. Concern that Premier Wen Jiabao's government will step up policy tightening, along with dangers posed from Europe's debt crisis, has sent China's benchmark stock index down 21 per cent this year.

'Housing prices continue to grow apace, it appears the government measures so far have only affected the transaction volumes,' said Liu Li-Gang, an economist at Australia and New Zealand Banking Group in Hong Kong. 'The government will have to work more to contain the strong demand' for property, he said, adding that higher interest rates would be most effective.

Last month marked the first easing in the annual rate of property price gains in 11 months. On a monthly basis, values advanced 0.2 per cent.

Sales in Beijing, Shanghai and Shenzhen fell as much as 70 per cent in May from the previous month and land sales for residential development projects in 70 Chinese cities fell 14 per cent, the official Shanghai Securities News reported earlier this month.

An index tracking 34 real-estate companies has plunged about 28 per cent this year, the worst performer among five subgroups of Shanghai's stock benchmark. It slid one per cent yesterday.

Sales by China Vanke, the nation's biggest publicly traded property developer, dropped 20 per cent in May from a year ago, and Guangzhou R&F Properties Co's contracted sales last month shrank 48 per cent on year, according to the developers' stock exchange filings.

'These exceptionally low transaction volumes are partly a result of banks' unwillingness to lend and also the result of buyers taking a step back' to wait and see what the government's next measures may be, Michael Klibaner, head of research in China for Jones Lang LaSalle said earlier this week.

Officials may introduce a trial property tax after already tightening sales rules for developers, raising some down payment requirements and restricting loans for multiple-home buyers, according to state media.

Besides industry-specific measures such as requirements for larger down-payments for some homes, the government on May 2 raised banks' reserve requirements for the third time this year to contain overheating risks after first-quarter economy expanded at the fastest pace in almost 3 years.

'The government's recent measures to cool the housing market focus on limiting investment and increasing the supply of public and low-cost housing,' Barclays economists Peng Wensheng and Chang Jian wrote in a June 7 report. 'This represents a regime shift in housing policy' and more measures are likely to come, they wrote.

Prices may tumble between 20 per cent and 30 per cent in coming quarters, according to the Barclays analysts' projections. The impact on the economy will be cushioned by rising public housing construction, they wrote.

Last month's biggest year-on-year price gains were in Hainan, the southern island being developed as a tourist destination. Hainan's Haikou and Sanya cities reported annual increases of 52.8 per cent and 50.8 per cent. Among the 70 cities covered, 12 had price declines in May from the previous month, including Beijing, Nanjing and Guangzhou. Eastern China's Hangzhou saw the biggest monthly drop, at 0.6 per cent.

Investment in real estate rose 38 per cent to 1.39 trillion yuan (S$288 billion) in the first five months of this year, after a 36.2 per cent gain in the January-April period, according to the statistics bureau.

Property sales by area rose 22.5 per cent in the first five months to 302 million square metre, the statistics bureau said. The pace is compared with an increase of 32.8 per cent between January and April. The area under construction rose 72.4 per cent from a year earlier to 615 million square metres.

For the full year, property sales may shrink 30 per cent from 2009, Jing Ulrich, Hong Kong-based chairwoman of China equities and commodities at JPMorgan Chase, said before yesterday's release. -- Bloomberg

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.