China property prices fall on month as curbs bite
* Nationwide prices post first monthly drop since Feb 2009
* Annual property inflation eases for second straight month
* Steering market to soft landing key to overall economy
By Zhou Xin and Alan Wheatley
BEIJING, July 12 (Reuters) - 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 percent from May, lowering the annual property inflation rate to 11.4 percent in June from 12.4 percent in the year to May and April's reading of 12.8 percent, the National Bureau of Statistics said on Monday.
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. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a breakdown of China's property investment [nTOE66B01N] For a breakdown of China's property price data [nTOE64A01H] For a breakdown of China's June money data [nTOE66A00F] For a story in China's June trade data [nTOE669009] For a poll on China's interest rate outlook [nTOE66803W] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
"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."
NO RELAXATION YET
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 on Monday 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. [nTOE66B00U]
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 percent of national output and 25 percent 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.
(Editing by Jacqueline Wong)
((alan.wheatley@thomsonreuters.com; +86 10 6627 1235; alan.wheatley.reuters.com@reuters.net))
((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com)) Keywords: CHINA ECONOMY/PROPERTY
(C) Reuters 2010. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nTOE66B03G
- Tweet this
- Link this
- Share this
- Digg this
- Reprints
Follow Reuters