China’s new home prices in June rose in the most number of cities tracked by the government in 11 months as buyer sentiment improved after the central bank cut interest rates.
Prices climbed in 25 cities out of the 70 the government looks at, the most since July last year. Prices fell in 21 from a month earlier, according to data released by the statistics bureau today. The eastern city of Hangzhou led the gain with a 0.6 percent jump from May, while major cities Beijing and Shanghai recorded gains of as much as 0.3 percent. Home prices were unchanged from May in 24 cities.
The result poses a dilemma for outgoing Premier Wen Jiabao, who is trying to spur the slowest economic growth in three years with interest rate cuts. Shares of developers declined as the data makes it more difficult to loosen property policies, according to Nomura Holdings Inc.
“There are no good methods in the short term,” said Yao Wei, a Hong Kong-based economist at Societe Generale SA. “If the government tightens further, that will hurt economic recovery. But easing will drive home prices to rebound.”
A gauge tracking property shares in Shanghai fell 3.3 percent at the close of trading, the lowest since May 21. The index was the worst performer the among five industry groups on the Shanghai Composite Index.
Data from private companies have also showed a pickup in the housing market. China’s home prices rose for the first time in 10 months in June, SouFun Holdings Ltd., the nation’s biggest real estate website owner, said on July 2.
The central bank cut the interest rates on July 5 for the second time in a month to spur economic growth that eased for a sixth quarter. Wen pledged over the weekend to intensify fine-tuning of policies to boost growth and has been tolerating minor forms of easing of some property curbs.
“Demand is picking up,” Nicole Wong, a Hong Kong-based property analyst at CLSA Asia-Pacific Markets, told Bloomberg Television. “The relaxation has come in terms of lower mortgage rates and lower mortgage rates for more cities. That’s been spreading.”
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.
Among the major cities, Guangzhou and Shanghai both rose 0.2 percent from May, while Shenzhen decreased 0.1 percent. In May, prices declined in 40 cities month-on-month, while the record this year was in January when they dropped in 47 cities.
Existing home prices in Beijing and Shanghai rose 0.2 percent each in June from a month earlier, according to today’s data.
The property price rebound makes it “more difficult to loosen property sector policy,” Zhang Zhiwei, Hong Kong-based chief China economist at Nomura wrote in a note to clients today.
“The government will rely more on public investment to boost growth and unlikely to cut interest rates further in the rest of 2012, in order to avoid resurgence of property price bubble,” Zhang said.
While Wen has said he won’t waver from curbs to keep prices affordable, local governments have started easing some property policies. The eastern city of Yangzhou in May introduced home subsidies, Beijing allowed some discounts on mortgages for first-home buyers and Shanghai raised the tax threshold on purchases of some homes. About 30 Chinese cities have issued “fine-tuning” policies since the second half of 2011, according to Centaline Property Agency Ltd.
China’s home sales rose the most this year in June, increasing 41 percent from May to 531.3 billion yuan ($83 billion), according to the statistics bureau data.
The southern business hub of Shenzhen may allow individuals to take loans against money in their public housing funds to buy first homes, according to a proposal posted on the Shenzhen Housing Provident Fund Management Center’s website on July 16. Individuals contribute money from salaries to their housing provident funds, which are held by the city.
Local governments that loosened property curbs or covered up the easing of measures on residential real estate must be stopped, while restricting speculative demand and investment in property must be made a long-term policy, the official Xinhua News Agency reported earlier this month, citing Wen, who was on an inspection tour in eastern Jiangsu province.
China’s property curbs are still at a “critical” period, and the country should stick to all property curb policies, Ma Xiaoming, a statistician at the National Bureau of Statistics, said in a statement posted to the agency’s website today.