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China Home Prices Mark Worst Performance as Only Two Cities Posting Gains

China’s December home prices posted their worst performance last year, with only two of the 70 cities tracked posting gains, as the government reiterated its plans to maintain housing curbs.

Prices in 52 of 70 cities monitored by the government declined from the previous month, the National Statistics Bureau said in a statement on its website today. New home prices in the nation’s four major cities of Shanghai, Beijing, Shenzhen and Guangzhou declined for a third month, it said.

The government said last month it won’t back away from curbs on the real-estate industry, with the financial center of Shanghai and the capital of Beijing among Chinese cities that have said they will continue to impose restrictions on home purchases this year.

“The downtrend of China home prices is consistent with our expectations,” said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd. in a phone interview today. “The government policies have achieved the intended results. What we’ll need to watch next is if the falling home prices will increase the risk of hard-landing in the Chinese economy.”

China’s economy grew 8.9 percent in the fourth quarter from a year earlier, the statistics bureau said yesterday, the slowest pace in 10 quarters as Europe’s debt crisis curbed export demand and the property market weakened.

Shares Fall

A gauge tracking property shares in Shanghai Composite Index (SHCOMP) fell 1.7 percent today at the close, compared with a 1.4 percent decline on the benchmark measure.

The eastern city of Wenzhou, where a credit squeeze on smaller businesses prompted a visit and pledge of financial aid from Premier Wen Jiabao in October, posted the biggest month-on- month drop of 1.9 percent, according to the data. The western city of Guiyang and Yinchuan in the northwest, the only two cities that had gains in home prices, recorded increases of 0.1 percent each.

“The property market in Wenzhou was simply too speculative with a lot private entrepreneurs investing in industries that they don’t really know,” Liu said. “When they are short of cash, the first thing they do is to sell off their properties to pay back debts.”

Among the four major cities, Beijing declined 0.1 percent while Shanghai fell 0.3 percent, according to the statement.

‘Unambiguously Deteriorating Trends’

Today’s figures came after private data also showed signs of cooling. China’s home prices fell for a fourth month in December, according to SouFun Holdings Ltd. (SFUN), the country’s biggest real estate website.

The first half will be difficult for developers and other companies and the economic expansion may fall below 8 percent, Wei Yao, a Hong Kong-based economist for at Societe Generale SA, wrote in a note to clients today.

“Today’s report is consistent with the unambiguously deteriorating trends seen in property sales, construction, starts and investments,” Yao said. “The data just turned from bad to worse. Contraction in sales and sharp deceleration in investments will send shock waves along industry chain.”

Chinese developers have to pay a principle and interest of 250 billion yuan on trust loans in 2012, according to a Jan. 13 report by China International Capital Corp. Developers may cut prices, sell projects and extend trust loans to avoid the risk of defaults, it said.

Get Worse

“Things will get worse before they get better,” Michael Klibaner, head of China research at Jones Lang LaSalle Inc., said in an interview in Shanghai before the release of the data, adding that he expects the government’s policies to ease after the National Peoples’ Congress in March. “Developers will get bailed out to some extent, but it will be a painful process.”

China’s home transactions rose 10 percent in 2011, the slowest pace in three years, according to government data yesterday.

Existing home prices in Beijing fell 0.8 percent last month from November, while those in Shanghai dropped 0.4 percent, according to the bureau.

“China’s property measures have achieved visible effects that speculation has been restrained,” Ma Jiantang, the head of the statistics bureau in Beijing, said yesterday. “We will need to watch the challenges faced by the property, but I don’t think they will be the biggest risks to the Chinese economy.”

--Bonnie Cao. Editors: Linus Chua, Tomoko Yamazaki

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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