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China Vice Premier Says Property Curbs To Stay
Perspective | 02 December 2011

Chinese Vice Premier Li Keqiang said measures introduced to control the nation’s property market are at a “critical stage” and that the government should maintain the curbs, the official Xinhua News Agency reported.

Li also called for increased efforts to construct and “fairly distribute” affordable housing to low-income families, Xinhua reported. The vice premier made the remarks while visiting the city of Langfang in Hebei province on 25 November, where he checked on the implementation of the government’s affordable housing policies, Xinhua reported.

The government intensified property measures this year with limits on mortgages and restrictions on home purchases in about 40 cities, as well as aiming to build 10 million affordable housing units to boost supply. Some brokerages including Barclays Capital Research and asset managers such as CBRE Global Investors had earlier forecast that falling home prices in cities including Beijing and Shanghai may prompt the government to roll back some of its tightening measures.

“We expect the government to continue its current purchase and credit restrictions instead of easing them soon, which should constrain property market activity in coming months,” UBS AG analysts Tao Wang and Harrison Hu said in a report dated 25 November, predicting a 10% decline in housing starts for the next 12 months. “The most important factor underlying this outlook is policy.”

UBS expects property prices to drop by 10% to 15% in first-tier cities next year, and by 5% to 10% in other cities, they wrote.

Firmly’ Maintaining Curbs

Premier Wen Jiabao said at the end of October that the government would “firmly” maintain restrictions on real estate. Li is in line to replace Wen as premier next year, according to analysts including Willy Wo-Lap Lam, an adjunct professor of Chinese history at the Chinese University of Hong Kong.

China’s October home prices dropped in 33 of 70 cities monitored by the government, the worst performance this year.

The government is unlikely to reverse its monetary policy in the short term or ease curbs on the property market even as economic growth slows, according to Citic Securities Co. The central bank increased interest rates three times and the reserves ratio six times this year.

House prices in the more affluent tier-one and tier-two cities are likely to fall by 10% to 30% next year, exceeding losses in other cities as higher property prices limit affordability, Daiwa Capital Markets analysts Danny Bao, Yunye Lu and Alex Ye said in a report received 28 November. Values may decline 5% to 15% in the less affluent tier-three and tier-four cities as more homes are owner-occupied, they said.

Price Cuts

Property developers have started cutting prices by 20% to 30% on some projects in coastal cities such as Shanghai, the brokerage said. It also forecast a 10% decline in sales volume next year, predicting “lackluster” demand in the tier-one and tier-two markets.

“The government’s public housing initiatives will squeeze the market shares of the major and private developers,” the analysts said. “We expect the government’s policy to result in a soft landing for the housing markets in the major coastal tier-1 and tier-2 cities in order to avoid the potential erosion of GDP growth.”

China’s property prices may post further declines next year with the value of some real estate projects dropping as much as 40%, Financial News reported 28 November, citing Yang Hongxu, a researcher at E-House China R&D Institute. Liquidity and inventory pressure faced by developers, along with government curbs, will depress prices, the newspaper said, citing Yang.

Most Chinese builders face payment delays from developers as the pace of construction slows from three months earlier amid tighter credit and a slowdown in home sales, Credit Suisse Group AG said in a report.

Agile Property Holdings, the Chinese developer in which JPMorgan Chase & Co. owns a stake, also said it will stop buying land until at least February and is slowing construction at some projects as sales dwindle amid the government’s property curbs.

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