CHINA – Curbs take steam out of property investment

By Zheng Yangpeng

China’s real estate investment growth slowed sharply in the first half of this year, dragging down the overall economy, as the central government pledges to maintain its curbs on the property market.

Real estate investment grew 16.6 percent in the first six months of this year, compared to 32.9 percent in the same period last year, the National Bureau of Statistics said on Friday.

This is also significantly lower than the year-on-year growth of 20.4 percent in fixed-asset investment, triggering concern that flagging real estate investment will further hamper the government’s efforts to ramp up economic growth. Vigorous real estate investment was previously the driving force of the economy.

China’s economy grew by 7.6 percent in the second quarter from a year earlier, the slowest pace since the first quarter of 2009, the bureau said.

Upon the release of the data, regulators seemed well aware of the negative effect of lackluster real estate investment on the economy.

“The slowdown in China’s economy is due to the exacerbation of the external economic environment, the continuation of property control policies and weakening domestic demand,” said bureau spokesman Sheng Laiyun.

But Sheng stressed that the strict controls on the property market will not be relaxed.

“Though the curbs on the property market will affect the economy in the short term, they will be conducive in the long run to the wellbeing of the macro economy, especially in preventing a real estate bubble,” Sheng said.

 A day earlier, a major regulator of China’s land supply, the Ministry of Land and Resources, vowed to “resolutely” curb abnormal fluctuations in the real estate market.

The ministry said that the high land transfer prices that have reemerged in some areas in recent weeks did not alter the overall gloomy market situation.

It said that, in the first half of the year, land supplies dropped compared to a year earlier, and growth in land prices has also declined.

The drop in land supply was accompanied by the slowing pace of developers’ land purchases, which fell 19.9 percent year-on-year in the first half, compared to a fall of 18.7 percent in the first five months of the year, said the bureau.

The bureau also said that newly started property construction fell by 16.3 percent in June from a year earlier, deepening from a fall of 4.6 percent in May.

Some industry observers attributed the slowdown in land purchases and newly started property construction — signs of developers’ dampened enthusiasm — to the central government’s strict property policies in place since last year.

The curbs restrict the number of homes each family can buy, requiring families buying a second home to pay a larger down payment and higher mortgage rates.

“The decline in newly started property floor space demonstrated the difficulty of developers’ business and their gloomy market outlook. It made them cautious about buying land and delayed construction,” said Yang Hongxu, deputy director of the Shanghai-based E-house China Research and Development Institute.

Yang warned that the curbs may result in a short supply of houses next year, thus pushing prices up again.

Sales, prices pick up

But some economists noticed that despite the overall sluggish market, house sales and prices had already picked up in June, especially in major cities.

Data from the bureau showed that the decline in house sales in the second quarter is already losing momentum.

Nationally, house sales in the first half of this year dropped 10 percent year-on-year, compared to the 13.6 percent decline in the first quarter.

In June, China’s property sales revenues increased 6.9 percent, snapping a seven-month losing streak.

House prices have rebounded in major cities in the past month. The property research institute China Index Academy reported that, in 10 major cities, house prices, calculated according to land transfer fees, surged 43.9 percent from the first quarter to reach 2,904 yuan ($455) per square meter.

In comparison, the average house price in 100 cities was 1,474 yuan per sq m, up 18.6 percent year-on-year.

Qu Hongbin, HSBC’s chief economist for China, estimated that the warming up of housing turnover in the past two months may have significantly eased developers’ liquidity pressures.

Analysts believed the two interest rate cuts in June and early July had also reduced developers’ lending costs.

“The property market now poses a dilemma for policymakers. On the one hand, further curbs may jeopardize the overall economy and affect developers, which may cut the housing supply and thus push up prices. On the other hand, loosening curbs may frustrate the public, who are not yet satisfied with the effect of the curbs,” Yang said.

However, the mainstream outlook is that the curbs will remain in place over the next half of the year, while the central government will ramp up efforts to encourage developers to build more affordable homes.

These moves are expected to prop up real estate investment while satisfying genuine demand.

Yang said the central government would urge local governments to beef up land supplies for affordable homes, but he cast doubt on the enthusiasm of local governments and developers for this endeavor.


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