China’s Property Market Reaches ‘Tipping Point,’ Nomura Says

China’s Property Market Reaches ‘Tipping Point’
Construction work progresses in Haizhu district, Guangzhou, Guangdong province, China. China’s home prices fell in 33 of 70 cities monitored by the government in October. Photographer: Forbes Conrad/Bloomberg

China’s property market has reached a “tipping point” and the slowdown in the housing industry will have a spillover effect on demand for steel and other construction materials, according to Nomura Holdings Inc.

The risk of the nation’s economic growth falling to less than 8 percent in the first quarter is also higher than before because of the housing market, Zhang Zhiwei, a Hong Kong-based economist at Nomura, said on a conference call today.

“The property sector has probably already reached a tipping point given the data is getting worse at a very fast pace,” Zhang said. “We’ve been here before in 2008 with housing investment and I feel we’re getting close to that stage. I’m more worried about the housing sector and the GDP of the first quarter.”

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, according to figures from the statistics bureau on Nov. 18.

Shares of Chinese developers declined. Longfor Properties Co., controlled by China’s richest woman Wu Yajun, dropped 5.4 percent to HK$7.89 at the close in Hong Kong, the lowest in six weeks, while state-owned China Resources Land Ltd. slid 4.5 percent to HK$10.22.

Shanghai Home Sales

Home sales volume in China’s financial center of Shanghai plunged 45 percent in November to date from the same period last year, according to property research company Shanghai Uwin Real Estate Information Services.

The country’s private housing investment is expected to increase 14 percent in 2012, matching the gain in 2008, which was the slowest in 10 years, Nomura said. So-called second- and third-tier or less affluent cities will drive the nation’s housing demand, the brokerage said.

“In the private market sector, the downturn will be longer than 2008 because the government is taking a different strategy by pushing public housing,” Zhang said. “Private housing will stay weak for quite some time.”

Premier Wen Jiabao said this month that the government won’t relax property curbs. The government this year raised down-payment and mortgage requirements and imposed home purchase restrictions in about 40 cities to avert a bubble. The central bank also increased interest rates three times and reserves ratio six times this year.

Barclays, CBRE

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. Zhang said he expects the government to maintain its housing measures and loosen monetary policy “gradually.”

More than twice the number of cities posted declines in October compared with September, when 16 locations reported lower prices from August, according to the latest government data. Prices in 23 cities were unchanged in October and 14 recorded gains, the data showed.

Housing values in 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.

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 the housing data last week. BNP Paribas predicted a 10 percent decline by the second half of next year.

“I expect more cities to fall month-on-month,” Zhang said. “We are certainly not at the worst moment yet.”

Residential property accounted for 6.1 percent of the country’s gross domestic product last year, according to Citigroup Inc.

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