Buyers Bet Wen Can’t Keep Prices Down as Home Sales Gain

Buyers Bet Wen Can’t Keep Lid on Prices as China Home Sales Rise
Cranes operate on the construction site for China Vanke Co.'s "Fun City" in the Fangshan district on the outskirts of Beijing. Photographer: Keith Bedford/Bloomberg

Sales at Sunac West Chateau, a residential project in Beijing, surged almost 50 percent in June as the developer opened new buildings to attract buyers betting on a recovery even as the government pledges to keep a lid on the housing market.

“In the first half of the year, it was like gazing at flowers in a fog,” said Lou Yanqing, deputy sales manager of the project, using a Chinese expression to describe the uncertainty over the government’s policies to curb house price gains. “We’re seeing some sunshine now, and going forward there’s a big chance that the clouds will clear,” she said.

Premier Wen Jiabao said July 7 that citizens are worried prices will rise again, reiterating a pledge that his government will “unswervingly” continue property controls. Recent data suggest buyers aren’t listening: property sales and prices have rebounded as local governments relaxed some housing restrictions and the central bank cut interest rates.

“The possibility that history will repeat remains,” Credit Suisse Group AG analyst Vincent Chan said in a phone interview from Hong Kong, referring to past property surges that followed sales increases.

A 20 percent to 30 percent rebound is possible if the government, similar to past cycles, “mildly drops its tightening policy,” Chan wrote in a July 4 report. Existing home prices in Beijing, Shanghai, Guangzhou and Shenzhen surged 42 percent, 58 percent, 79 percent and 69 percent respectively in the 24 months from February 2009 as China loosened property curbs, according to Credit Suisse.

Sales Surge

A gauge tracking property shares in Shanghai fell by 0.3 percent to the lowest in two months, the only declining group among the five on the Shanghai Composite Index benchmark.

At Sunac West Chateau, developed by Sunac China Holdings Ltd., sales jumped to about 650 million yuan ($102 million) last month, from more than 400 million yuan a month since March, Lou said in a July 10 interview. Buyers paid deposits for 80 percent of apartments on June 9, when Tianjin-based Sunac, part-owned by U.S. private-equity firm Bain Capital LLC, opened for orders three buildings in the project’s third phase. The average price per apartment in the third phase is 15 million yuan.

The project’s average selling price has climbed between 15 percent and 25 percent this year, with prices and sales rising “month by month” since February, Lou said. The company is keeping increases “stable and within a reasonable range” to avoid driving clients away, she added.

Prompting Buyers

Home prices in June rose in the most cities tracked by the government in 11 months, the bureau of statistics said yesterday. Prices climbed from the previous month in 25 cities out of the 70 the government looks at, the most since July last year.

“Stable or slightly rising home prices would prompt those waiting on the sideline for further home price decline to enter the market,” Deutsche Bank AG analysts, led by Tony Tsang, wrote in a report today. Home sales in most Chinese cities will “remain robust” in the second half of the year, they said.

Sales of homes rose for a second month in June, by 41 percent from May, to 531.3 billion yuan, the National Bureau of Statistics reported last week.

China Vanke Co., the country’s biggest developer by market value, said its contracted sales were 13.3 billion yuan last month, a 24 percent jump from May. Longfor Properties Co., controlled by the country’s richest woman, Wu Yajun, reported on July 5 that June sales rose 36 percent from May.

Cheaper Mortgages

“Transaction volumes have been picking up, that’s primarily from first-time home buyers,” said Michael Klibaner, Shanghai-based head of China research at broker Jones Lang LaSalle Inc. “Now, with the two interest rate cuts in the last month, the pricing of mortgages has come down too.”

Gao Yang, a 32-year-old employee at a company that makes bathroom fixtures, is among buyers leading the turnaround. In May, he spent 1.2 million yuan on a 52-square-meter (560-square-foot) apartment outside Beijing’s fourth ring road, one of the capital’s six highway loops.

“Home prices in big cities such as Beijing and Shanghai, will never go down,” Gao said. “I had already missed some good deals, and I was afraid home prices would rise again.”

Even before the central bank cut interest rates, lenders had lowered mortgage rates for first-home buyers, with some banks in Beijing offering a 15 percent discount to the central bank’s benchmark as compared with premiums of as much as 10 percent last year, according to Bacic & 5i5j Group, the capital’s second-biggest real estate broker.

Wen’s Pledge

The People’s Bank of China cut its benchmark interest rates on July 5 for the second time in a month. Expectations for further policy easing rose after China’s consumer price index declined in June and the economy expanded 7.6 percent in the second quarter from a year ago, the slowest pace in three years.

“The rate cut will shake people’s expectations on the continuity of property curbs,” Zhou Binglin and Cui Rong, analysts at Guosen Securities Co., wrote in a July 6 report. “Combined with the real benefits from lowered interest rates, the risk of home prices running astray again is rising.”

The economic slowdown is testing Wen’s pledge to sustain controls aimed at reining in the housing market as he tries to boost growth. China’s State Council is organizing several research groups to look into the reason for rebounding home prices and give advice on policy measures to counter further increases, the official Shanghai Securities News reported July 16, citing unidentified people.

‘Critical Period’

During the July 7 visit to eastern Jiangsu province, the Premier was cited by the official Xinhua News Agency as saying property controls are at a “critical period” and the task remains “arduous.”

China’s new home prices rose for the first time in 10 months in June, SouFun Holdings Ltd., the nation’s biggest real estate website owner, said. Home prices have fallen 2.2 percent from the peak in August, according to SouFun.

Thirty-two percent of respondents to a SouFun survey said home prices have come to a turning point, with 15 percent of them expecting “prices will surge,” according to the results on the website as of July 18. About 45 percent of them said they’re planning to buy in the second half of the year. The survey started July 3 and runs through Aug. 2.

Some developers have called off discounts or raised prices after sales picked up following the monetary policy easing, SouFun said. That’s abating financial difficulties for developers that had prompted price cuts, it said.

‘No Pressure’

Yeland Group Co., a Beijing-based developer, is facing “no pressure” to boost sales by cutting prices, President Ma Yin said in a phone interview, adding the company has just cleared all inventory at a 43,069-square-meter residential project in Beijing. The company’s first-half profit surged from 80 percent to 120 percent from a year earlier to as much as 225 million yuan on stronger sales, according to a July 11 filing to the Shenzhen stock exchange.

A sharp rebound in prices is unlikely given the central government’s “steadfast” stance on property curbs, Wang Juelin, deputy head of the housing ministry’s policy research center, said in an interview in Beijing on June 27. The rebound in housing sales is mainly a result of improved access to bank lending as inflation pressures eased, he said.

Speculators Deterred

“Nobody, be it investors nor speculators, now dare to engage in large-scale property speculation, because they don’t know when the market or policy stance may change,” Wang said. “Should the market heat up again, you can just add to the curbs a little bit and it will cool down right away.”

China’s two-year effort to curb the property market included raising down-payment and mortgage requirements, imposing a property tax for the first time in Shanghai and Beijing, increasing building of low-cost social housing, and placing home purchase restrictions in about 40 cities.

Those measures have helped deter speculators. About 92 percent of buyers in the market purchased homes for self-use in May, according to CLSA Asia-Pacific Markets. Such “real demand” will drive sales up 12 percent this year, said the brokerage’s Hong Kong-based analyst Nicole Wong.

Homebuyer Gao said the latest interest rate cut will lower mortgage repayments and push up the value of his new home.

“That’s exactly what I’d been hoping for,” Gao said.

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