At the Housing Ministry’s New Year meeting they remained committed to cooling what they regard as overly fast property price rises in 2011.
The world’s second largest economy has so far introduced a series of measures which have not yet had the desired effect as property prices have stayed stubbornly high.
Analysts believe that property prices are on track to dip early this year, with tighter monetary policy and rising inventories combining to take some air out of a market that some fear could yet swell into a bubble.
The government launched a campaign late last year to break soaring property inflation, especially the top end sector in wealthy cities. It succeeded for a while in stabilizing prices, but there have been signs of a pick-up in recent months.
Officials are expected to use higher interest rates, lending curbs and a battery of direct controls and a property tax to deflate the real estate market.
‘The first half of the year will be a hard time for the property sector,’ said Chen Dongqi, deputy chief of the Macroeconomic Research Institute under the National Development and Reform Commission, China’s powerful economic planning agency.
Property prices will fall in the first six months of 2011, though by less than 10%, according to Liu Shiqing and Xu Shengli, analysts at Essence Securities in Beijing. ‘Under the impact of the macro policies, shares in developers face high risks in the next two quarters,’ they said in a note to clients.
Chinese Premier Wen Jiabao has said he was not satisfied with the results of property tightening so far and voiced determination to pull housing prices back to a reasonable level within his term, which ends in early 2013. ‘Until now, the measures have not been implemented well enough, and we will reinforce our efforts in two ways,’ he told a radio broadcast.
Analysts also expect Beijing to start a trial programme of a long awaited property tax in 2011 in a few key cities, including Shanghai and Chongqing, which will increase the cost of owning a residential unit.
The central bank raised interest rates by 25 basis points on Christmas Day, its second time in just over two months and economists polled by Reuters expected a further 50 basis points of rate rises in the first half of the year. That will increase the cost of home purchases by 5%, according to calculations by China Real Estate Index System, a leading private research house.
But it could have an adverse impact on developers who are already finding it difficult to raise funds from banks, trusts and the stock market. At the same time, about 1.2 billion square meters of residential property space now under construction will hit the market in the coming few months. That is about 45% more than the total sold so far this year, enough to tip the market into relative over supply.
Developers, especially those facing a cash crunch, will opt to cut prices. Li Shaoming, an analyst at China Jianyin Investment Securities in Beijing, estimated that listed developers had enough cash to sustain operations for 10 months if transaction volume stopped growing. If it slowed, their financial cushion would deteriorate quickly, he added.
‘The issue now is how can we make the sector develop in a sustainable and healthy way,’ said He Qi, deputy secretary general of the China Property Association.
