Bloomberg News

China May Ease Property Curbs to Prevent Collapse, UBS Says

January 10, 2012

(Updates with analyst’s comment in seventh paragraph.)

Jan. 10 (Bloomberg) -- China will probably ease property curbs as early as the middle of the year to prevent a collapse of the housing market as the measures may boost supply to the highest in a decade, according to UBS AG.

“The gap between supply and demand will reach the peak, and the supply will be 1.5 or even 1.6 times demand, and it will be a disaster for developers,” Chen Li, head of China equity strategy at UBS, said in a Bloomberg Television interview. “Their cash flow will be exhausted to zero by the end of this year if they cannot get any financing. No one can afford that.”

China’s home prices fell for a fourth month in December after the government reiterated plans to maintain curbs that include higher down-payment and mortgage requirements, according to SouFun Holdings Ltd. Housing values dropped in 60 out of 100 cities tracked by the nation’s biggest real-estate website owner, including the 10 largest cities such as Shanghai and Beijing.

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 the home purchase restrictions this year.

“If you assume the property policy keeps stable in the coming year, that means by the end of the year the inventory of property will reach a new peak, around 10 years or even 20 years,” Chen said.

Second-Half Rally

Chen said the stock market may rally in the second half after the government relaxes its property curbs, which may boost property shares. The gauge tracking real estate stocks on the Shanghai Composite Index climbed 3.4 percent at the close, the most since Oct. 28. The benchmark measure gained 2.7 percent.

China’s property market isn’t in a bubble as the ratio between home prices and personal incomes are in a “healthy” range, according to Eva Lee, a property analyst at UBS. Housing prices are 7.5 times income, while those in Singapore and Hong Kong about 12 times, Lee told reporters in Shanghai.

The easing of housing curbs will aim to help homebuyers instead of speculators or those purchasing the properties for investment, she said, adding that there won’t be a “blanket loosening.”

China’s home sales are expected to fall 5 percent in 2012, Lee said. The decline will be led by the so-called first and second-tier or more affluent cities, where housing transactions may decrease by 15 percent, she said.

The government has said it will continue to increase the supply of social housing. It plans to start the construction of 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 earlier this year.

--Stephen Engle and Bonnie Cao. Editors: Linus Chua, Andreea Papuc

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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