Bloomberg News

China Home Prices Slide Amid Reserve-Ratio Speculation: Economy

January 04, 2012

Jan. 4 (Bloomberg) -- China’s home prices fell for a fourth month in December as the government prolonged a crackdown on speculation that risks deepening the slowdown in the world’s second-biggest economy.

Property values dropped 0.25 percent from November, SouFun Holdings Ltd., the nation’s biggest real-estate website owner, said today. Prices slid in 60 of 100 cities, and all of the 10 biggest, including Beijing and Shanghai.

Premier Wen Jiabao said business conditions may be “relatively difficult” this quarter and monetary policy will be fine-tuned as needed, in a statement released yesterday. Barclays Capital and Bank of America Merrill Lynch say lenders’ reserve requirements may be cut before a weeklong Chinese New Year holiday starts on Jan. 23.

“China’s economy is still on a downtrend and the next reserve ratio cut may come as early as this week,” said Kevin Lai, a Hong Kong-based economist at Daiwa Capital Markets. “More liquidity is needed in running up to the Chinese New Year holiday and to provide funds for companies that may face more difficulties in coming months.”

Asian stocks rallied on the first full trading day of the new year after U.S manufacturing rose at the fastest pace in six months. The MSCI Asia Pacific Index advanced 1.2 percent as of 1:05 p.m. in Tokyo. In China, the Shanghai Composite Index fell 0.2 percent as of the 11:30 a.m. local time break in trading.

Italy, Germany

Across Asia, economic reports will include Thailand’s inflation. In Hong Kong yesterday, the Retail Management Association said that while retailers reported buoyant Christmas sales, spending by visitors from China on expensive goods such as watches and jewelry has slowed.

In Europe today, a purchasing managers’ index may show services in December contracted for a seventh straight month in Italy, according to the median estimate of economists surveyed by Bloomberg.

Other reports may indicate services are expanding in Germany and France.

European inflation reports are also scheduled to be released, with region-wide consumer prices expected to show a 2.8 percent increase from a year earlier, according to the median estimate ahead of a report from Luxembourg.

Italy’s inflation in December may have slowed to 3.5 percent from a year earlier, from a 3.7 percent rate a month earlier, a survey showed. In Washington, a Commerce Department report may show orders to U.S. factories jumped 2 percent in November, ending a two-month skid, another survey showed.

Supporting Growth

In China, the ruling Communist Party is shifting focus to supporting growth rather than damping inflation as Europe’s debt crisis threatens to curb exports. A cut in banks’ reserve requirements, the proportion of deposits they are required to set aside, was the first since 2008.

“We see downside pressure on our economy and elevated inflation at the same time,” Wen said during a two-day trip to Hunan province, according to a statement on the government’s website yesterday. “We also face problems of weakening external demand and rising costs for companies.”

The government said last month at an annual economic planning meeting that it won’t back away from real-estate industry curbs this year that are damping home sales and pulling down prices. The nation’s financial center of Shanghai and some other Chinese cities have also said they will continue to impose home-purchase restrictions this year.

Property Market

“Property is likely to be the last sector that the government will relax policies this year,” said Peter Bai Hongwei, a Beijing-based property analyst at China International Capital Corp., the country’s biggest investment bank.

Average home values nationwide climbed 2.9 percent in December from the same month in 2010 to 8,809 yuan a square meter (10.76 square feet), the slowest year-on-year growth since August, SouFun said.

Evergrande Real Estate Group, China’s second-biggest developer, said last month sales rose to 79.1 billion yuan ($12.6 billion) in the first 11 months, exceeding the 2011 target by 11 percent. Sales of China Vanke Co., the biggest by market value, stood above 100 billion yuan for a second year in 2011, according to the company.

“It’s actually very hard to tell whether China’s property market will succeed a soft landing,” said China International’s Bai, who expects home prices to bottom as early as in the third quarter.

The government has said it will continue to increase supplies of social housing by setting the target of starting 7 million homes this year, compared with 10 million in 2011. The completion will at least keep pace with last year’s 5 million units, People’s Daily reported today, citing Feng Jun, a housing ministry official.

--Bonnie Cao, with assistance from Li Yanping in Beijing and Sophie Leung and Vinicy Chan in Hong Kong. Editors: Paul Panckhurst, Brendan Murray

To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at bcao4@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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