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China home prices to rebound in H2 on policy easing

BEIJING - Beijing’s efforts to support its faltering economy, coupled with local governments loosening their grip on housing curbs, will likely help home prices recoup first-half losses later this year, a Reuters poll found on Thursday.

By (Reuters)

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Published: Thu 12 Jul 2012, 5:23 PM

Last updated: Tue 7 Apr 2015, 12:23 PM

The latest survey of 15 economists and property market analysts, conducted between July 9-11, predicts a 1.4 percent drop in house prices in the first six months of this year and then a rise of 2.5 percent in the second half.

While a number of Chinese leaders have recently said home prices remain too high, a modest rise in coming months is probably well within policymakers’ comfort levels as long as there is no repeat of the sharp, swift gains seen after the 2008/09 global financial crisis.

Indeed, signs of stability in the key sector are likely to be welcomed as the rest of the economy slows due to a combination of cooling demand at home and abroad. A stronger property market may even help Beijing stave off fears that it may be facing a hard economic landing.

The latest poll marks a turn in sentiment when compared to a similar poll in April which predicted a dip of 5 percent in home prices in the first quarter and then a further 10-20 percent drop for the rest of the year.

China’s economy slowed more than expected between April and July, forcing Beijing to issue a slew of measures to support growth and prompting some local governments to tweak curbs to revive the cooling real estate market, which affects more than 40 other sectors of the economy.

Memories are still fresh of home prices more than doubling in some cities including Beijing and Shanghai in 2009 and 2010 soon after the country rolled out a massive stimulus package to prop up growth on the wake of the financial crisis.

Fears of being priced out of the market again have recently pushed some would-be home buyers in a few cities to queue up overnight for new apartment launches, according to domestic media reports.

“Panic as well as real pent-up demand will drive up home prices,” Xianfang Ren, an economist with IHS Global Insight in Beijing, told Reuters.

“The Chinese government would like the real estate market to keep its current status quo, as it will help avoid a hard landing of the economy,” said Ren. “They don’t wish home prices to fall further, but they will tolerate a mild pickup.”

The Chinese government provides no nationwide home price index and its National Bureau of Statistics announces home price changes in 70 major cities on the 18^th of every month.

Reversed expectations

Twelve of 15 respondents in the poll expect a sustained recovery in the property market, as concerns are rising that easing monetary policy will stoke house price inflation again. Fresh liquidity flooding out from state-owned banks also will find a way to flow into the housing market.

Home sales have been picking up since March and news of recent hikes in land costs, a prelude to home price rises, is unnerving home buyers perching on the sidelines.

“Recent rate cuts, local government policy fine-tuning to support first-home buyers and rising home transaction have changed the market expectation and home buyers will no longer wait and see,” Liu Yuan, head of research at property consultancy Centaline, said.

The central bank cut benchmark interest rates on July 5, its second such move in less than a month. It has also lowered banks’ required reserves twice so far this year, releasing about 800 billion yuan for additional lending.

“More and more people are expecting home prices to stabilise or rise again,” Liu said.

No strong signal

Eleven of 14 respondents say there will be no cut in down-payments for first home buyers in 2012, while all 14 said China won’t lift restrictions on the number of homes a family can own, as such moves would be regarded as too strong positive signals.

As much as it fears about a hard landing of the economy, policymakers are also afraid of a repeat of 2009-2010 home price surge, which can increase social unrest — the last thing China needs this year as it goes through the once-in-a-decade top leadership transition.

“I don’t think the government will repeat the same mistake they made in 2009 by relaxing property curbs and refuelling home price inflation,” said Jason Hu, head of research at Chinese property consultancy Holdways in Beijing.

Data to be released on Friday will likely show economic growth cooled for a sixth consecutive quarter in the April-June period to its slowest pace in more than three years, raising hopes for further policy easing.

But Premier Wen Jiabao vowed again on Saturday that China must firmly stick to its property tightening measures, underscoring official concerns about renewed housing bubbles.

Wen’s comments came after more than 30 local governments have relaxed, in one way or another, the property curbs he had mandated previously. Though the measures have succeeded in nudging home prices down and taking the froth off home prices, they are still well beyond the reach of many middle-class families.

Respondents as a whole said China’s property markets are overvalued, a view unchanged over the last two polls.

They did not expect national property curbs to be lifted in 2012 and predicted China will expand its trial property tax to more first- or second-tier cities beyond Shanghai and Chongqing, where it was imposed early last year.

Most regard wider adoption of the property tax as China’s alternative for more heavy-handed home purchase restrictions.