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Property prices in China see biggest monthly decline of 2011

It said that prices dropped on a monthly basis for a third consecutive month in November and is evidence that the government's two year tightening campaign is cooling the property market.

The index, compiled from a survey of property developers and real estate agencies, showed the average home price in November was 0.28% lower than October at 8,832 yuan ($1,385) a square meter, down from 8,856 yuan in October. The November average price was the lowest since May, when it was 8,819 yuan.

The survey, which the company conducts with online real estate brokerage SouFun Holdings has been watched widely since China scrapped a national property price index in January.

China’s property prices are about to reach a turning point  with developers facing tighter liquidity, according to the People’s Bank of China.

‘The turning point of property prices is emerging,’ it said in a statement, adding that property investment growth has eased from a high level and that developers are facing tighter credit conditions.

Last week China cut the reserve requirement ratio for its lenders for the first time since 2008, which Standard Chartered economist Stephen Green said showed that concern has shifted to growth from inflation and that the government is in loosening mode. Prior to the cut, loan limits to curb inflation and home purchase restrictions to prevent a property bubble had spurred price drops in cities including Beijing and Shanghai.

The bank indicated that developers should be able to cope with a 20 to 30% drop in prices. ‘The bigger concern that banks and companies have is whether a 20% fall in home prices might induce panic selling, and whether relevant departments will be able to take effective measures to control any chain reactions,’ its statement added.

Zhang Zhiwei, a Hong Kong based economist at Nomura Holdings said last month that China’s property market had reached a tipping point and that the slowdown in the housing industry will have a spill over effect on demand for steel and other construction materials. The risk of China’s economic growth slowing to less than 8% in the first quarter also increased because of the housing market, Zhang said.

Figures from developers for November are not expected to be encouraging. ‘The price data provides a hint about upcoming data from developers reporting November sales, which are expected to be quite bad. The property price decline will continue as developers try to boost sales,’ said Kris Li, a property analyst from Shenyin Wanguo Research & Consulting.

The average price of second hand apartments in Beijing fell to a 15 month low of 22,018 yuan ($3,471) per square meter in November, according to figures from the Beijing Municipal Commission of Housing and Urban Rural Development. Second hand sales totalled 7,428 units for the month, a 55.8 percent decline compared with December 2010.

Over the weekend, Vice Premier Li Keqiang said the government will maintain property tightening measures next year, but there is speculation that it may ease controls if a steep drop in property prices threatens economic growth.

Property prices in some areas have fallen after the government implemented higher interest rates and limits on house purchases to curb speculation. The declines are putting pressure on property developers and on local governments that depend on land sales for revenue.