China on course to squeeze property bubble
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Xinhua, October 5, 2011
After nearly two years of government efforts to cool the country's rampant property market, prospective homeowners are finding that housing prices may fall within their reach before long.
Home sales are drying up in many cities. Property developers are feeling strain from the credit crunch and higher borrowing costs. Analysts said real estate firms may be forced to cut prices due to the government's firm grip on the market, which has included purchase limits in cities and reduced liquidity.
Other measures put in place include higher down payments, the introduction of a property tax in some cities and the construction of low-income housing projects.
Signs of progress
In the first half of September, contract sales for new homes in Beijing stood at 2,056 units, down 16 percent from the first half of August and down 33 percent from the second half of the month, according to figures from Basic-5i5j, a major real estate sales and consulting firm based in Beijing.
Sales of new homes and existing homes fell 26.4 percent month-on-month to reach about 13,000 units in August, the lowest amount sold since 2009, according to a Beijing-based real estate transaction management website.
New home prices slid 2.5 percent from July and second-hand homes edged down 0.9 percent in August. Shanghai and Shenzhen also suffered sluggish housing sales.
Hurt by the gloomy sales, property prices in other cities have started to drop after defying government controls for months on end.
The latest figures from the National Bureau of Statistics showed that 46 cities out of a statistical pool of 70 major cities saw new home prices decline or remain unchanged from a month earlier in August, compared with 31 cities in July. Sixteen cities saw month-on-month decreases in new home prices in August, up from 14 in July.
"The reason why housing prices are so difficult to tame is because of the record lending boom that occurred in previous years, local governments' reliance on land sales for revenue and the expectation that housing prices will always continue to rise," said Yin Zhongli, a property and financial expert from the Chinese Academy of Social Sciences, a government think tank.
To drain excessive money out of the market, the People's Bank of China, the country's central bank, has raised its reserve requirement ratio for banks 12 times and hiked interest rates five times since the beginning of last year.
China's property developers will face increasing liquidity pressure over the next six to 12 months, with tightening credit conditions possibly resulting in decreased prices, U.S.-based financial services company Standard and Poor's said on last week.
"The recent figures indicate that the government's measures are having a gradual impact," said Wang Pei, a property analyst from CEBM Group Ltd., an independent investment advisory firm. He said that he expects average housing prices across the country to decline starting from September, with property investment slowing down during the period as well.
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