China Home Prices Must Fall 30% to Reach ‘Reasonable’ Level, Lawmaker Says

China’s property prices need to decline 30 percent to reach a “reasonable” level, according to He Keng, a deputy director of the Financial and Economic Affairs Committee of the National People’s Congress.

Housing prices will be at a “reasonable” level when they are equivalent to about six years of salary for a family, the senior lawmaker said, according to the transcript of an interview with China National Radio.

“Based on this, property prices may need to fall 30 percent,” He said, according to the transcript on the broadcaster’s website. “But it doesn’t mean prices will go down in every region, every city. The exact extent of the decline will depend on demand.”

China reiterated this year it won’t back away from housing curbs including tighter mortgage requirements, while Beijing and the financial center of Shanghai are among Chinese cities that have said they will continue imposing home purchase restrictions this year. The nation’s home prices had their worst performance in 2011 in December, with only two of the 70 cities tracked by the government posting gains, according to data from the National Statistics Bureau this month.

Home transactions will drop 10 percent in China this year, according to Daiwa Securities Capital Markets, while UBS AG said the curbs may boost supply to the highest in a decade.

Developers may be facing one of their toughest years in 2012, Chen Li, head of China equity strategy at UBS, said earlier this month. Their cash flow may be “exhausted to zero” by the end of the year as some companies struggle to get financing for projects, Chen said.

Price Slide

Prices are starting to slide as government curbs begin to take effect in less-affluent cities. In 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, prices slid 1.9 percent in December from the previous month and 6.9 percent from a year earlier, according to the data.

Home sales last year rose 10 percent, the slowest pace since 2008, according to data released on Jan. 17. In 2008, China’s home sales retreated for the first time since the 1998 privatization of the housing market, dropping 17 percent.

The government may ease property curbs as early as the middle of the year as an oversupply may be a “disaster” for developers, said UBS’s Chen. Supply will peak at 1.5 times to 1.6 times demand, Chen said.

A measure tracking property shares on the Shanghai Composite Index (SHCOMP) has climbed 6.7 percent since the start of the year, the most among the five industry groups making up the benchmark stock gauge.

--Winnie Zhu. Editors: Linus Chua, Shiyin Chen

To contact Bloomberg News staff for this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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