China home prices seen dropping more

July 9, 2008
China home prices seen dropping more
Citic Ka Wah Bank cites weak demand, govt unlikely to ease up loan
restrictions

(SHANGHAI) Property prices in China will fall further because demand
is weak and the government probably won't relax restrictions on home
loans, according to Citic Ka Wah Bank chief economist Liao Qun.

'Policy targets with respect to the property market are still some
way from being reached,' Mr Liao said at a press briefing here
yesterday. 'The adjustment of the market is set to continue into
2009.'

China's government is seeking to rein in soaring property prices to
help slow inflation from an 11-year high. It raised interest rates on
mortgages for second homes and increased the minimum downpayment to
40 per cent of the sale price last September.

The central bank also told commercial banks to further tighten
mortgage lending last December. Under new rules, loan applications
for the purchase of a second apartment are counted by household
instead of by individual.

Housing sales in China fell 0.4 per cent to 136.6 million square
metres in the first four months of 2008 from a year earlier,
according to the National Development and Reform Commission (NDRC).
Home prices in 70 major cities rose 9.2 per cent in May, the smallest
gain in eight months.

First-tier cities including Shenzhen, Beijing, Guangzhou and Shanghai
will face more downward pressure on prices than smaller cities
because of oversupply, according to Mr Liao.

The economist said he expects home prices to fall a further 10-15 per
cent in Shenzhen, where average prices had already dropped 36.5 per
cent between last October and May this year. Prices in Beijing and
Shanghai are likely to fall 10 per cent over 12 months.

China Vanke Co, the country's largest publicly traded real estate
developer, said on Monday that apartment sales fell 22.8 per cent in
June from a year earlier.

Falling home prices in Shenzhen and Beijing have raised concerns that
an asset bubble burst may leave China's banks with more non-
performing loans. The banking regulator warned lenders in May against
a potential rebound in bad loans amid tighter credit controls and
rising inflation.

Property-related lending gained 30 per cent annually in the past two
years in China - twice as much as overall loan growth, according to
Moody's Investors Service. Some builders evaded lending controls by
indirectly accessing bank financing, it said.

The central People's Bank of China and government ministries held
talks on stabilising real estate prices, and may make financing
easier, the Beijing-based Economic Observer reported on July 5,
citing a person it didn't identify. A decline in property prices will
erode demand and disrupt economic growth, the newspaper said, citing
an NDRC report.

Mr Liao said yesterday that he doesn't expect the government to relax
rules on real estate financing soon. 'With excess liquidity still
prevailing, the government would be concerned that an early
relaxation of tightening measures would result in an undesired quick
rebound in the market, negating the previous tightening efforts,' he
said.