Property prices set to drop 20% next year as lending tightens

There is likely to be a major period of re-adjustment in March or April 2011 as the government measures such as constraints on developers Prices and an adjustment of the country’s monetary policy impact the market, the report says.
 
But the real estate sector is not expected to suffer a steep fall in prices despite a tightening financial situation.
 
The capital available to developers is forecast to contract sharply in the first quarter of next year and there will be a tightening of loan repayments and stricter restrictions on property buyers, according to Liu Yuanchun, deputy head of the university’s School of Economics.
 
Property prices in 70 of the country’s large and medium sized cities rose 0.2% in October from the preceding month, slower than the 0.5% rise in September, the latest data from the National Bureau of Statistics show.
 
The year on year price rise in October was 8.6%, the sixth straight month of a fall in the growth rate from a peak of 12.8% in April, as the figures show the market is slowing down slightly.
 
Chinese authorities have introduced a series of cooling measures in the country’s property market since September, including a nationwide suspension of loan lending for third home purchases and higher deposits for first time buyers.
 
Also foreigners living in China are only allowed to buy a single home for their own personal use, while foreign institutions with a presence in the country are only permitted to buy commercial property, which must be in the same city where they are registered.
 
There has been much talk of the need to curb rising property prices amid fears of a real estate bubble. Li Chang’an, a public policy professor at the University of International Business and Economics in Beijing, told the China Daily that a decline in property prices could be achieved if the government is intent on proceeding with its cooling measures and ensuring a better supply of affordable properties in the market.
 
‘Price declines in the property market may first appear in small and medium sized cities due to their excessive development of new buildings, then in large cities like Beijing and Shanghai,’ he said.
 
Already some of China’s top trust companies have halted property related lending and investment following a new regulatory order from the China Banking Regulatory Commission that instructed trust firms to assess the risks posed by their portfolios in a fresh move to rein in the property market.
 
‘The CBRC ordered a self examination last Friday in a document and our application to invest in a property project was turned down by our company on the same day. I don’t know whether it's a regulatory requirement or a decision by the company,’ a source at Ping An Trust told Reuters on Monday.
 
Two sources close to Zhongrong International Trust cited a company document as saying that it had halted all new plans to invest in the property sector, except affordable housing, a niche strongly supported by the government.
 
One of the sources added that China might order a complete halt to all property related businesses by trust firms. Funds from trust companies have been an important alternative channel for Chinese developers to raise capital as the country has tightened controls on bank lending.