New prop­erty curbs be­gin to bite at last

Ac­tions taken by pol­i­cy­mak­ers to rein in as­set price bub­ble looks to be get­ting trac­tion


The push by China’s pol­icy mak­ers to rein in prop­erty bub­bles looks to be get­ting trac­tion, ac­cord­ing to early in­di­ca­tors from the na­tion’s big­gest cities.

Bei­jing home sales vol­umes plunged 41 per­cent year-onyear last month while Shanghai’s slumped 18 per­cent, China Real Es­tate In­for­ma­tion Corp data showed, af­ter new purchase re­stric­tions tight­ened mort­gage lend­ing. Trans­ac­tions fell 50 per­cent in smaller cities.

Now pol­icy mak­ers must bal­ance de­flat­ing prop­erty prices with safe­guard­ing over­all eco­nomic ex­pan­sion. Ef­forts to curb ex­ces­sive gains could cut 0.6 per­cent­age point from 2017 eco­nomic growth, and as much as 1 point with ag­gres­sive na­tional tight­en­ing, ac­cord­ing to Mor­gan Stan­ley.

“Prop­erty con­struc­tion will un­likely be a big sup­port for the econ­omy next year, as both sales and in­vest­ment will de­cel­er­ate,” Wang Tao, chief China econ­o­mist at UBS Group AG, said in a news con­fer­ence call. Sales will con­tinue to slow and in­vest­ment growth will re­main mod­er­ate for the rest of this year, she said.

Mar­ket fric­tion could com­pli­cate the sit­u­a­tion. Devel­op­ers and home­own­ers have been slow to re­duce prices while po­ten­tial buy­ers are hold­ing off be­cause of hopes for dis­counts. Economists ex­pect the stand­off will last through the end of this year be­fore weak sales grad­u­ally drag down home prices and start to weigh on in­vest­ments early next year.

Devel­op­ers stay­ing on the side­lines have led to sup­ply and trans­ac­tion short­falls. To­tal new prop­erty en­ter­ing the mar­ket in Oc­to­ber plunged 61 per­cent from a year ear­lier in Bei­jing, Shanghai, Guangzhou and Shen­zhen as devel­op­ers sharply slowed sales, ac­cord­ing to CRIC.

Ris­ing costs amid higher down-pay­ment re­quire­ments forced some buy­ers to walk away from deals. Rinko Zhang, a 30-year-old mag­a­zine edi­tor, found out first hand.

Zhang listed her 45-squareme­ter one-bed­room south Bei­jing apart­ment on Sept 20 af­ter find­ing a two-bed­room unit closer to work. In­ter­est was strong, she raised the price, and a buyer agreed to an Oct 5 sign­ing. But they stood her up, and her agent said the buyer couldn’t af­ford the new higher down pay­ment. Now she says in­ter­est in her unit has dried up.

Newcurbs are bit­ing just as all key gauges on the na­tional eco­nomic dash­board turn green. China has posted three straight quar­ters of 6.7 per­cent growth, four years of fac­tory-gate de­fla­tion have drawn to a close, and two main man­u­fac­tur­ing in­dexes are at two-year highs.

“Pol­i­cy­mak­ers are afraid that if they push too hard, they’ll prick the bub­ble and steer the econ­omy into re­ces­sion,” said Shen Jian­guang, chief Asia econ­o­mist atMizuho Se­cu­ri­ties Asia Ltd in Hong Kong. “By de­flat­ing it grad­u­ally, risks are lower.”

Pol­i­cy­mak­ers are en­cour­ag­ing dif­fer­ent cities to tai­lor their ac­tions then watch and wait in­stead of re­sort­ing to a broad na­tional mone­tary tight­en­ing as in the past, Shen said. “They’re try­ing to avoid re­peat­ing the chaos like last year’s stock rout.”

It’s a chal­lenge for the cen­tral bank as in­ter­est rates are too blunt a tool, and there’s an im­bal­ance. Fevered buy­ers are push­ing real es­tate prices to strato­spheric heights in ma­jor cities, while some smaller cities still have vast ghost town de­vel­op­ments stand­ing empty.

Curbs may soon weigh on fixed-as­set in­vest­ment, a sec­tor un­der­pin­ning eco­nomic growth this year, and real es­tate ser­vices, which grew fastest in the boom­ing ser­vices in­dus­try in the first three quar­ters, China In­ter­na­tional Cap­i­tal Corp economists Liang Hong and Eva Yi wrote in a re­port. If devel­op­ers ex­pect weaker hous­ing prices, the lat­est uptick in real es­tate in­vest­ment may lose mo­men­tum, they wrote.

Prop­erty in­vest­ment has slowly re­cov­ered this year as big city home sales soared. In­vest­ment in devel­op­ment has picked up from a six-year low, ac­cel­er­at­ing to 5.8 per­cent growth in the first nine months of this year from 5.4 per­cent in the first eight months. But new starts, a lead­ing in­di­ca­tor of in­vest­ment, fell 19.4 per­cent yearon-year in Septem­ber af­ter a 3.3 per­cent gain the prior month, cal­cu­la­tions based on of­fi­cial data showed.

chief China econ­o­mist at UBS Group AG the year-on-year plunge in Bei­jing home sales vol­umes in Oc­to­ber


A vis­i­tor ex­am­ines a prop­erty project model at a real es­tate expo in Bei­jing. Wang Tao, the year-on-year slump in Shanghai home sales vol­umes in Oc­to­ber

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