China is likely to reverse policies cracking down on the property market because they will put the nation’s 8 percent economic growth target for this year at risk, Macquarie Securities Ltd. said.
“Ironically, it is the very effectiveness of the property market measures that undermine their credibility,” Hong Kong- based economist Paul Cavey said in an e-mailed report today. “Current policies toward property can’t be sustained.”
Measures could be reversed in the fourth quarter, when the government has evidence that the market has cooled, Cavey said. Chinese officials intensified their campaign against property speculation after record price gains in March, helping to drive a decline of 10 percent in the Shanghai Composite Index in the past month.
The government’s tools have included a ban on loans for third-home purchases and higher mortgage rates and down-payment requirements for second-home purchases. The central bank has also raised banks’ reserve requirements, pulling money out of the financial system.
“A big slowdown of property still seems inconsistent to us with 8 percent growth, and so we would expect policy to reverse,” Cavey said.
China’s economy expanded 11.9 percent in the first quarter from a year earlier, the fastest pace in almost three years.
Property prices across 70 cities rose 11.7 percent in March from a year earlier, the most on record. A slump could lead to bailouts for Chinese banks, Fitch Ratings said today.
“If we do see a pretty serious correction in the property market, banks’ balance sheets will likely be severely impacted and this could at some point necessitate bailouts,” Charlene Chu, a senior director in Fitch’s financial institutions ratings team in Beijing, said on a conference call.
“The problem is there is a very high indirect exposure to the property market, mainly through corporates who have taken out loans and used that money for property investments or developments of their own,” Chu said.
Advances for property purchases at the 19 Chinese banks Fitch covers make up about 25 percent to 30 percent of their total lending, she said. Bad loans won’t significantly deteriorate this year, though they could be a concern next year, Chu added.
China’s real estate market is a cause for concern, Jonathan Cornish, a Fitch senior director on the company’s Financial Institutions Ratings team for North Asia, said on the same conference call. Loan growth in China is projected to remain “strong” at about 17 percent this year, he said.