China’s home prices fell in 33 of 70 cities monitored by the government in October, the worst performance since it expanded property curbs and scrapped the reporting of national average housing data this year.
Wenzhou led the decline with a slump of 4.6 percent from September, more than 10 times the average drop, according to data released by the statistics bureau today. A credit squeeze on smaller businesses in the eastern city prompted a visit and pledge of financial aid from Premier Wen Jiabao last month.
China Vanke Co. and Poly Real Estate Group Co. fell more than 2.8 percent, leading a decline in stocks of developers after the report showed new home prices retreated in Shanghai, Shenzhen and Guangzhou. Wen said this month that the government won’t relax property curbs, after raising down-payment and mortgage requirements this year to avert a possible bubble.
“The turning point of China’s home prices has come,” Shen Jian-guang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., said in a phone interview today. “Prices not only fell for new homes and in major cities, but also in secondary cities and in the existing home market.”
Analysts including Barclays Capital Research and asset managers such as CBRE Global Investors are betting price declines will force a policy reversal as the tightening weighs on economic growth. The government this year raised down payment and mortgage requirements and imposed home purchase restrictions in about 40 cities. The central bank also increased interest rates three times and reserves ratio six times this year.
“The government’s property policy is working and working in a much more apparent way than expected,” Nicole Wong, a property analyst at CLSA Asia-Pacific Markets, said in a Bloomberg Television interview in Hong Kong today, adding that measures may be eased if there are further declines in sales. “Monetary measures do work, as a lot of buyers do use a lot of mortgages,” she said.
China’s banking regulator warned lenders that some projects backed by local governments may run out of funds, and loans to property developers are likely to sour as sales slow, a person with knowledge of the matter said.
The China Banking Regulatory Commission told lenders last week to step up asset sales and debt restructuring for unprofitable local government financing vehicles struggling to repay loans, the person said, declining to be identified as the instructions were private. The watchdog also said banks should cut “high-risk” loans to developers, the person said.
The gauge tracking property shares on the Shanghai Composite Index fell 1.9 percent to a four-week low at the close, extending the decline this year to 14 percent.
More than twice the number of cities posted declines compared with September, when 16 locations reported lower prices from August. Prices in 23 cities were unchanged in October and 14 recorded gains, the data showed.
Housing values in the financial center of Shanghai and the southern business hub of Guangzhou fell 0.2 percent from the previous month, while those in Shenzhen neighboring Hong Kong slipped 0.1 percent. Beijing prices were unchanged. Five analysts surveyed by Bloomberg News expected prices in China’s four biggest cities, with a combined population of 66 million people, to drop as much as 0.3 percent.
Today’s figures came after private data also showed signs of cooling. China’s home prices slid for a second month in October, according to SouFun Holdings Ltd. (SFUN), the country’s biggest real estate website.
Existing home prices in Beijing dropped 0.5 percent last month from September, while those in Shanghai retreated 0.2 percent, according to the bureau. Wenzhou’s existing homes also lost the most among the 70 cities in October, declining 4.4 percent. Fewer than half of the locations tracked by the government posted a gain from September.
Premier Wen visited Wenzhou in eastern Zhejiang province last month amid reports of surging bankruptcies among private companies unable to repay debt to so-called underground lenders.
“A lot of the city’s entrepreneurs invested in the property market with the capital they earned from their own business,” Mizuho’s Shen said. “With the tightening of credit, they started to sell off properties.”
Home prices will fall between 15 percent to 30 percent in the next two years, Mark Mobius, who oversees $40 billion as Hong Kong-based executive chairman of Franklin Templeton Investments’ Emerging Markets Group, said before today’s release. BNP Paribas predicted a 10 percent decline by the second half of next year.
“The government should start to be cautious about property prices over correcting on the downside as it will inevitably affect the economy,” Wee Liat Lee, a Hong Kong-based property analyst at Samsung Securities Co., said in an e-mail.
Residential property accounted for 6.1 percent of the country’s gross domestic product last year, according to Citigroup Inc.
The nation’s trade surplus may be eliminated in one to two years, making the yuan rate less of an issue, said Li Daokui, an adviser to the central bank. Policy makers in the world’s second-largest economy have pledged to adjust the country’s growth toward domestic demand and narrow its external surplus to help address lopsided flows of trade and investment that contributed to the global financial crisis of 2008.
--Bonnie Cao. With assistance from Rishaard Salamat in Hong Kong and Jacob Gu in Shanghai. Editors: Linus Chua, Tomoko Yamazaki
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