China’s home values fell in a record 54 of 70 cities tracked by the government in May as developers cut prices to boost sales amid housing curbs.
The eastern city of Wenzhou led declines with a 14 percent slump in values from a year earlier, while Beijing and Shanghai recorded losses of as much as 1.6 percent, according to data released by the statistics bureau today.
China has pledged to maintain its curbs on the housing market even as economic growth is slowing, prompting the central bank to cut borrowing costs for the first time since 2008 on June 7. The Housing Ministry said this month that China will steadfastly continue with its property curbs that have so far included higher down payments and restrictions on the number of homes being bought.
“China’s property market is approaching gently the bottom of its decline path and I expect we’ll see a touchdown sometime over the next three to four months,” Peter Churchouse, managing director of Portwood Capital, a Hong Kong-based property investment firm, said in a Bloomberg Television interview. “They’ve definitely succeeded in slowing the market down. They’ve engineered it pretty nicely so far.”
Today’s data compares with April, when 46 cities posted declines in new home prices.
Among the major cities, Shanghai and Guangzhou both retreated 1.6 percent in May, while Shenzhen decreased by 2.3 percent from a year earlier.
A gauge tracking property shares on the Shanghai Composite Index (SHCOMP) rose 0.5 percent at the close, while the benchmark measure climbed 0.4 percent.
“With further housing market corrections and sluggish land sales, local governments have the incentive to introduce various measures to circumvent the property tightening measures,” Zhu Haibin, Hong Kong-based chief China economist at JPMorgan Chase & Co., wrote in a note to clients today. “The conflict of interests between the central and local governments could intensify in the coming quarters.”
Private data also showed the home market continued to cool. May home prices fell to a 16-month low, SouFun Holdings Ltd. (SFUN:US), the nation’s biggest real-estate website owner, said on June 1. Residential values dropped 0.3 percent last month from April, the ninth month-on-month decrease, said SouFun, which began compiling the figures in July 2010.
Existing home prices in Beijing fell 3.1 percent last month from a year ago, while those in Shanghai dropped 1.5 percent.
A total of 40 cities posted declines in new home prices in May from the previous month. In April, 43 cities recorded lower housing values from March, according to the data.
Home prices were unchanged in Beijing last month from April, while values fell 0.1 percent in both Shanghai and Guangzhou.
“If the government carries on with the property measures without any fine-tuning, that will lead to a big slump on land and other asset prices,” said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd. (ANZ) in a phone interview. “That will affect the collateral prices of banks and lead to tighter credit.”
The central bank and China Banking Regulatory Commission both clarified last week that they didn’t make any changes on the mortgage rate floor and risk weighting.
China’s home sales rebounded for the first time this year, rising 19 percent in May to 375.7 billion yuan ($59 billion) from April, according to the statistics bureau data.
The eastern city of Yangzhou in Jiangsu province said last month it will offer new buyers subsidies of as much as 0.6 percent of the total value of a home, Xinhua Daily reported, citing the local finance bureau. The move followed other Chinese cities that attempted to lift local property curbs in the past year. Plans by Wuhu in Anhui province and Foshan in the south were abandoned within days of their announcements.
Lenders in Beijing started offering mortgages to first-home buyers at as much as 15 percent below the central bank’s benchmark rate after the rate cut, said Wu Hao, a manager at the loan brokerage of Bacic & 5i5j Group, Beijing’s second-biggest real estate brokerage. In the second half of 2011, they paid 5 percent to 10 percent higher than the benchmark, she said.
“The rise in sales was mainly driven by first-time home buyers,” Liu Yuan, a Shanghai-based researcher at Centaline Property Agency, China’s biggest brokerage, said in a report last week. “But as the central government remained firm on its stance on property tightening, it would be difficult to rely on that group of buyers for a massive home price recovery.”
About 93 percent of homebuyers in China plan to live in their purchased property, while only 7 percent are so-called speculators, Alastair Hughes, Asia-Pacific chief executive officer of Jones Lang LaSalle Inc. (JLL:US) said in a Bloomberg Television interview last week.
Evergrande Real Estate Group Ltd. (3333), the country’s second- biggest developer, posted a 33 percent gain in sales to a record 10.4 billion yuan in May from a year earlier. Agile Property Holdings Ltd. (3383) reported an 18 percent increase in sales last month from a year ago.
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