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Wednesday, April 14, 2010

Chinese property market sizzles in March

More policies to curb overheating and reduce bubble risks likely: analysts

China’s property prices rose at a record pace in March, indicating government efforts to stem gains aren’t working and more drastic measures may be needed amid concern of a bubble in the nation’s housing market.

Residential and commercial real-estate prices in 70 cities climbed 11.7 per cent from a year earlier, the National Bureau of Statistics said on its website. The data goes back to 2005.

China has raised mortgage rates and re-imposed a sales tax on homes in the first two months of the year to reduce the risk of asset bubbles.

The government announced in March that developers will have to pay a higher deposit for land purchases and banned banks from lending to builders found to be hoarding land or holding back home sales in anticipation of higher prices.

‘The data is bad news,’ said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd in Hong Kong. ‘This means that monthly price gains are accelerating again after slowing to a four-month low of 0.9 per cent in February. Expect further policies to slow the real estate market.’

China is more likely to raise interest rates and scrap the yuan’s peg to the US dollar as the economy may have expanded by 11.7 per cent in the first quarter, the fastest pace in almost three years, according to the median estimate in a Bloomberg News survey of 24 economists.

‘To convince homebuyers that it is fully committed to curbing overheating and reducing bubble risks, Beijing will need to use all of its policy tools, and that most obviously includes higher interest rates,’ Brian Jackson, a Hong Kong-based emerging-market strategist at the Royal Bank of Canada, said yesterday.

China may raise interest rates in May, when it issues April’s consumer price index that could exceed 3 per cent because of rising home values, Mr Kowalczyk said.

Haikou, the capital city on the southern island of Hainan, had the biggest gain, with a 53.9 per cent jump in overall property prices, the statistics bureau data showed. Sanya, also on Hainan and a host of the Miss World beauty pageant, followed with a 52.1 per cent increase.

Both cities also led gains in prices of newly built homes: Haikou by 65 per cent and Sanya by 58 per cent, the report showed.

Property prices on Hainan, located in the South China Sea, have advanced after the Chinese government issued at the start of this year a plan to turn the island into an international tourism destination. The province, China’s southernmost, had a population of 8.5 million in 2008 and exports mostly agricultural products such as rubber.

Overall property prices rose 1.1 per cent from February, the statistics bureau said. Investment in real estate gained 35 per cent to 659.4 billion yuan (S$132.9 billion) in the first quarter, it added.

China will crack down on price speculation in the property market and curb attempts to hoard land, the nation’s Housing and Urban-Rural Development Ministry said in a statement yesterday.

It plans to increase the supply of affordable housing to first-time home owners, including building three million low and medium-cost houses, and 2.8 million units in shanty areas, the statement said, citing a phone conference yesterday chaired by Jiang Weixin, Minister of Housing and Urban-Rural Construction.

China, the world’s third-biggest economy, may also impose property taxes, Lee Wee Liat, a Hong Kong-based analyst at Nomura Holdings Inc, said before yesterday’s announcement.

‘That would push some potential buyers on the sideline,’ he said. ‘If that’s not effective, they will impose some more measures.’ China has passed a plan to impose a property tax on home purchases and may start a trial in Beijing, Shanghai, Chongqing and Shenzhen, Sina.com reported on April 8, without saying where it got the information.

On the same day, the Shanghai Municipal Housing Support and Building Administration Bureau said any study of a property tax in the city is ‘entirely normal’. China’s property market is in a bubble that may burst by as early as this year, hedge fund manager James Chanos said in an interview last week.

The country is ‘on a treadmill to hell’, according to Mr Chanos, who said in January the nation is Dubai times a thousand. ‘They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.’ Home prices in China may continue to rise between now and September due to a shortage of supply, Nomura’s Mr Lee said.

‘Last year, some developers were sceptical about the price increases and cut back on construction starts until the fourth quarter, so there’s no supply in the market,’ he said. ‘Whatever the developers are putting out, people are grabbing.’ While home prices may cool in the fourth quarter, values may still rise 15 per cent for the full year, he said.

Chinese developers have announced increases in first-quarter sales. Evergrande Real Estate Group Ltd said on April 2 sales jumped 175 per cent in the first three months of this year to 8.53 billion yuan. China Overseas Land & Investment Ltd, a Hong Kong-traded builder controlled by the Chinese construction ministry, said on April 8 sales rose 48.3 per cent to HK$13.7 billion (S$2.43 billion).

To damp speculation, the government in January re-imposed a tax on homes sold within five years of their purchase, after having cut the taxable period to two years in January 2009 to bolster a then flagging market.

The People’s Bank of China is targeting a drop of 22 per cent in new lending this year from 2009’s record 9.59 trillion yuan and told banks twice this year to set aside more cash as reserves. The first quarter result is due today.

Source : Business Times – 15 Apr 2010
Property

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