China New-Home Prices Rebound After Interest-Rate Cuts

China’s new-home prices rose in the largest number of cities in 14 months in July after interest- rate cuts and incentives for first-time buyers, complicating efforts to stimulate economic growth while curbing speculation.

Prices climbed from a month earlier in 49 of the 70 cities tracked by the government, the National Bureau of Statistics said on its website on Aug. 18. That was the most since May last year and compared with 25 cities in June. Prices fell in nine cities and were unchanged in 12.

Buyers, buoyed by two interest-rate cuts since June, have returned to the market even as the government pledges to maintain real estate curbs to make housing more affordable. The risk of a rebound in the property market may hamper the People’s Bank of China from reducing rates further or cut banks’ reserve requirement ratios to boost funds in the financial system and support lending after new credit slumped in July.

“Rising property prices are constraining aggressive policy action from the central bank,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. “The government will introduce more policies to contain a property bubble,” including the extension of a property tax to more cities, he said.

Photographer: Nelson Ching/Bloomberg

Residential buildings stand in Miyun County, Beijing, China. Close

Residential buildings stand in Miyun County, Beijing, China.

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Photographer: Nelson Ching/Bloomberg

Residential buildings stand in Miyun County, Beijing, China.

An inspection last month ordered by the State Council found recent increases in prices and easing policies by some local authorities among problems that need “particular attention,” the official Xinhua News Agency reported on Aug. 17.

The Shanghai Property Index (SHPROP) has climbed 10 percent this year, beating the benchmark Shanghai Composite’s 3.8 percent drop.

‘Bottomed Out’

“China’s home prices have bottomed out,” Johnson Hu, a Hong Kong-based property analyst at CIMB-GK Securities Research, said in a phone interview. “The central government may start to strictly implement the current curbs. New policies will depend on the trend of home prices. With the home purchase restrictions in place, it’s very unlikely housing prices will rebound strongly.”

China’s economy expanded 7.6 percent in the second quarter from a year earlier, the slowest pace in three years as Europe’s debt crisis crimped exports and the government’s property crackdown cooled domestic demand. The slowdown may extend into a seventh quarter, with Deutsche Bank AG cutting its growth estimate for the three months through September to 7.5 percent from 7.9 percent.

Policy ‘Fine-Tuning’

“Whilst this trend may well continue over the coming months, it’s still a little premature to label the slowdown over as certain macro-economic factors could yet threaten this recovery,” Mark Budden, China area leader at property consulting firm EC Harris, said in an e-mail.

The latest report adds to evidence the housing market is picking up after the PBOC cut interest rates for the first time in three years on June 7 and announced a second reduction less than a month later.

About 30 Chinese cities have issued “fine-tuning” policies since the second half of 2011, according to Centaline Property Agency Ltd. Yangzhou introduced home subsidies, Beijing allowed some discounts on mortgages for first-home buyers and Shanghai raised the tax threshold on purchases of some homes.

The data “show demand from first-home buyers is very strong and the interest-rate cuts had a big impact on the market,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “The government may issue new tightening measures, but they would be mild because it’s facing a big dilemma of balancing economic growth and property curbs.”

Suppressed Demand

Figures released earlier this month from SouFun Holdings Ltd. (SFUN), the nation’s biggest real estate website owner, showed new-home prices in 100 cities in July posted the biggest month- on-month gain in more than a year.

“There’s still quite a bit of pent up demand out there and it’s being artificially pushed down,” Zhang Xin, chief executive officer of Soho China Ltd. (410), the largest developer in Beijing’s business district, said in an interview on Aug. 16.

Among major cities, new-home prices in Beijing rose 0.3 percent from June, while the southern business hub of Guangzhou added 0.2 percent, the statistics bureau data show. Prices in Shanghai and Shenzhen were unchanged.

Of the nine cities reporting a decline in monthly prices, the eastern city of Wenzhou had the biggest drop of 0.8 percent, followed by the port city of Ningbo with a slide of 0.6 percent.

‘Firmly’ Restrain

Prices of existing homes rose in 38 cities last month from June, up from 31 cities the previous month, the report showed.

The cost of buying a new home is still declining in most cities on an annual basis, the data showed. Prices dropped in 57 of the 70 cities surveyed in July from a year earlier, unchanged from the number in June. Prices in Wenzhou dropped 15.6 percent and those in Ningbo fell 7.8 percent.

The government sent eight teams to 16 provinces and municipalities last month to check on the implementation of property curbs, an inspection aimed at “firmly” restraining speculation and consolidating results of the restrictions, Xinhua reported on July 24, citing a State Council statement.

China has over the past two years raised down-payment and mortgage requirements, imposed a property tax for the first time in Shanghai and Chongqing, increased building of low-cost social housing, and placed home purchase restrictions in about 40 cities.

‘Real Barrier’

The pressure of stabilizing housing prices in some cities is rising, Xinhua said on Aug. 17, citing a State Council statement on the result of the inspections. Rising prices have changed market sentiment and local governments should “firmly” curb property speculation, the news agency said.

The Shanghai Securities News also reported that the State Council is taking a “stricter tone” on property controls after the inspection.

Amid signs the government’s crackdown is affecting the finances of some property companies, the banking regulator has told lenders that lack of funding, high leverage and a peak of loans maturing have increased the risk that some developers’ financing chains may collapse, Bloomberg News reported on Aug. 17, citing a person with knowledge of the matter.

The China Banking Regulatory Commission has told lenders to push developers to sell homes at a faster pace, offload projects or sell stakes if they predict builders will have difficulty repaying loans due within 12 months, the person said.

The value of home sales transactions dropped 14.5 percent in July from the previous month after rebounding the most in a year in June, the statistics bureau said on Aug. 9.

China’s property industry is facing “huge challenges,” as the “toughest time” for the industry hasn’t passed, Kong Qingping, chairman of China Overseas Land & Investment Ltd. (688), the country’s biggest developer by market value listed in Hong Kong, said in a press briefing in Hong Kong on Aug. 10.

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To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net; Paul Tighe at ptighe@bloomberg.net

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