Monday, September 6, 2010

China Set on Forcing Drop in Property Prices

A series of official comments in recent days have shown that the Chinese government remains committed to forcing down housing prices, despite worries about a weak global economy and complaints from property developers.

The government's determination to keep cracking down on its frothy real-estate market may be a political necessity but risks hurting growth at a time when much of the world economy is weak, and contrasts sharply with efforts in the U.S. and Japan to add fuel to the fading global recovery.

Despite government measures in place since April, property prices have not fallen much in major Chinese cities, and housing sales have actually picked up in the last few weeks — signs the measures aren't achieving their declared aim of curbing speculative purchases and making homes more affordable.

Government officials, while emphasizing they are committed to supporting growth, are unequivocal that more needs to be done to fix the housing market. China's chief economic planner, Zhang Ping, told the nation's legislature last week: "Current housing prices in some large and medium-sized cities are still too high."

For the rest of the year, the government will "further implement measures to contain the overly rapid rise of housing prices in some cities, and curb speculative and investment demand for housing," said Mr. Zhang, the head of the National Development and Reform Commission.

A range of official voices, including an advisor to the central bank, a banking regulator, and commentaries in state media, have agreed: Housing prices still need to come down.

Changing course now would hurt the government's credibility with the public, analysts say. Many urban Chinese feel the surge in property prices over the past year has put home ownership out of their reach. Yet the repeated promises that tough policies will not be changed could also leave Beijing with less room to maneuver if growth slows more sharply than anticipated.

"These tightening measures will have to continue for at least a few more months," said Deutsche Bank economist Jun Ma. China's government is also pushing ahead with other restrictive measures, he noted, such as controls on lending, tighter supervision of public-works projects and closures of energy-wasting factories.

The drive to cool property markets in China—as well as in other booming Asian economies like Hong Kong and Singapore—comes as Japan is rolling out a new stimulus package and the U.S. looks for ways to bolster its own expansion.

By contrast, most forecasters expect China's economic growth to ease to a still-rapid 8% to 9% by the end of this year, from 11.1% in the first half. And its core manufacturing sector continued to expand in August, according to the closely-watched purchasing mangers' indices issued Wednesday.

The measures introduced in April included higher down payments and mortgage rates for many home buyers, limits on purchases by nonresidents and more construction of affordable housing.

At first, the moves seemed to have their intended effect, quickly cooling a booming market: Sales fell, and nationwide average housing prices were flat in both June and July.

But there hasn't yet been a major adjustment. New figures from Soufun, a real-estate consultancy, show property prices were actually higher in August than July for most of the 30 major cities it surveys. That includes a 12.3% rise in the capital city of Beijing, which already has some of the nation's highest prices.

Housing sales have also rebounded, and in southern cities such as Guangzhou and Ningbo they are back to levels reached before the government's new policies started.

The latest data "should strengthen Beijing's view that a reversal of policy tightening measures put in place earlier this year is not appropriate for the time being," said Brian Jackson, an economist for Royal Bank of Canada.

A commentary in the People's Daily, the Communist Party's newspaper, Tuesday reinforced the message: "With house prices still high and not falling, the results of the policies are still quite far from what ordinary people expect," the commentary said.

Xu Ce of the State Information Center, a government think tank, said in a report this week that the government needs to be careful not to crush real-estate investment, which is a major support for the broader economy. But he agreed that containing the rise in house prices is necessary to avoid a potential banking crisis, and broader political strains.

"The overly rapid rise in real-estate prices is now not just an economic problem, but an issue that affects the lives of a majority of people as well as social stability," Mr. Xu wrote in the report.


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