China property market feels the heat of cooling measures

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Bubble bursting? Undecided

Business Times - 14 Nov 2011

China property market feels the heat of cooling measures

Falling demand for homes may affect trade in commodities and consumer goods

(BEIJING) China's property market, a mainstay of the world's second-largest economy, has started to suffer a downturn that could have a knock-on effect on global trade in commodities, analysts warn.

House-buying demand has fallen across China after the authorities, fearing a property bubble, banned second home purchases in places including Beijing, increased minimum down payments and trialled property taxes in some cities.

At the same time, property developers have been hit by a lack of funds after the government hiked interest rates and restricted bank lending to rein in surging inflation and bring real estate prices into line.

Last week, Premier Wen Jiabao dashed hopes that measures to control the property market would be relaxed, saying these would not change, adding that housing prices should now return to 'reasonable levels'.

'On the global economy, the biggest impact would be on the commodity sector,' said Yao Wei, a China economist at Societe Generale based in Hong Kong. 'If China's property sector goes through a downturn, the demand for things like cement, steel, concrete, aluminium will all be affected.'

Last month, 177 property agencies shut down in Beijing alone after sales nose-dived, according to a report published last week by Home Link China - one of the country's biggest estate agencies.

There are now more than 120,000 unsold properties on the market in the capital, the highest number in 29 months, the state-run Beijing News daily said, citing official figures released on Friday. And in Shanghai, hundreds of angry home-buyers have launched a series of protests since October after developers slashed prices for some new projects, causing an outcry among those who had just bought at higher levels.

Potential buyers are now holding off as they wait for the prices to fall further, making it hard for estate agents and developers to get apartments off the market.

In the eastern city of Yueqing, one property firm even offered a brand new BMW car to the first 150 buyers of flats in a new residential complex.

'I do expect a negative impact for several months, if not quarters,' Zhang Zhiwei, an analyst from Nomura Securities in Hong Kong, said. 'Prices are just starting to fall and sales data in October looked pretty bad.'

Ratings agency Standard & Poor's said last month that it expected China's property prices to fall by 10 per cent nationwide over the next year.

Mr Yao goes further, saying prices could drop as much as 15 per cent and the downturn may last longer than one in late 2008 and early 2009 - 'because this time we will not have a four-trillion-yuan stimulus'.

Beijing's stimulus package - equivalent to US$635 billion - to respond to the global financial crisis was accompanied by an opening of credit valves, contributing to the hike in real estate prices in 2009 and 2010.

China was eventually forced to restrict lending after the policy drove up inflation.

Mr Zhang, like Mr Yao, said that if the downturn was confirmed over the next few months, it would have an impact on the global economy as China's vast construction sector would be hit, with repercussions abroad in turn.

And because real estate has links with many other industries, sectors such as consumer goods, decoration and electronics could also be affected, Mr Yao warned. 'When people buy property, they will definitely buy something new.'

Still, analysts say that strong domestic demand in China - with its rapid urbanisation and modernisation - is expected to ease the blow. -- AFP

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