December 20, China’s property market will face austerity next year as the government keeps its housing curbs in place to check price gains, while developers may struggle to contend with what many observers believe to be a turning point.
China will unswervingly maintain its property regulation policies next year to bring home prices back to a reasonable level, according to a statement released after the annual central economic work conference on Dec.14.
Vice Premier Li Keqiang in late November called on the government to stick to its current tightening measures and consolidate the results it had achieved.
Those results include falling home prices. According to the latest home price data released by the National Bureau of Statistics on Dec. 18, average home prices in 70 monitored cities fell 0.17% in November from a month earlier -- the second consecutive monthly decline. Prices decreased 0.13% in October and rose just 0.01% in both September and August.
The data also showed that prices of new homes in 49 out of 70 cities dropped in November from October, up from 34 in October from September, echoing a central bank statement earlier this month that the turning point in China’s home prices is approaching.
No Let-up
China launched a RMB 4 trillion ($586 billion at the exchange rate of the time) stimulus package in September 2008 to counter the influence of the global financial crisis. That has led to a massive lending binge, especially to property developers, fuelling a dramatic jump in home prices.
Beijing seems determined not to let the same happen this time around, with Chinese officials repeatedly pledging no let-up in the tightening of the property market, fearing that all their previous efforts would count for nothing.
Wang Juelin, an official from the Ministry of Housing and Urban-Rural Development, noted that any policy loosening without an alternative plan to keep prices in check would cause home prices to bounce back.
The current tightening measures include home purchase restrictions, higher down payments for multiple homebuyers, as well as curbs on onshore and offshore financing options for domestic developers.
Since the policy came into effect in February, a total of 46 cities have implemented home-buying restrictions, which will reach the deadline in the case of 7 participating cities by the end of this year.
So far only Guangzhou and Haikou have clearly stated they would continue to implement the restrictions after this year.
Those [seven] cities will likely be urged to keep the restrictions in place or consider taking part in the property tax trials currently in place in Shanghai and Chongqing, according to Yang Hongxu, head of research at the real estate research institute of Shanghai E-house.
Tough Year
With the threat of credit downgrades from international ratings firms and a sharp downturn in property transactions hanging over their heads, property developers are looking at a tough year ahead. China Vanke Co. Ltd. (000002.SZ), the country’s largest listed developer, is preparing itself for a difficult 2012, president Yu Liang said in mid-November.
“The current property curbs are a continuation of what’s left unfinished in the government’s property regulation campaign, and it hurts more this time since we didn’t handle it properly the first time back in 2008,” Yu said.
Yu said China Vanke was ready to take cautious measures to get through the tough times that may further worsen its property sales, which have fallen for the past 4 months. Sales in November fell to RMB 8.29 billion ($1.3 billion) from RMB 10.34 billion in October.
Home price growth will continue to ease and China will likely see a drop of as much as 3.5% in average home prices next year, compared with a 1.65% fall in 2008 at the height of the financial crisis, Noah (China) Wealth Management Center said in a report released on Monday.
The report chimed a chord with comments made by Nomura Securities’ China-based chief economist Zhang Zhiwei, who said at the company’s 2012 economic outlook conference on Dec. 19 that China’s real estate sector would witness a slowdown in growth and that a “tipping point” has emerged.
Zhang expects investments in commercial residential housing will shrink in the next few months, and the trend is not to be overturned by China’s efforts to build massive amounts of affordable housing units.