China’s Property Market Starts to Cool


SHANGHAI—Average housing prices in China fell in June for the first time in 16 months, official data issued Monday show, marking a long-awaited turnaround in the nation’s overheated property market.

Dissecting China’s Housing Market

Explore China’s booming real-estate market and the government’s latest policies through graphics, analysis and video stories.

The nationwide index of urban residential property prices, which covers 70 cities, was down 0.1% in June from May, the National Bureau of Statistics said, marking the first such month-on-month decline since February 2009.

The property price index for June was still 11.4% higher than the same time a year ago, an increase that slowed from the 12.4% rise in May.

Investors are watching these figures closely for an indication of whether China’s government can rein in a hot property market without stalling the country’s resurgent growth.

Real-estate analysts say they expect further declines in prices and sales in coming months. That, investors worry, may intensify an economic slowdown that began as the government began phasing out the massive spending program it mounted amid the global financial crisis.

Turning Point

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Beijing’s stimulus spending fueled the boom in real estate, which became one of the biggest supports for China’s economic recovery in the past year. But cheer for the quick resurgence turned into fears earlier this year that the government could be inflating an asset bubble, and sparked discontent at rising housing prices among many Chinese.

In April, China’s government made several moves to restrict housing-market speculation.

On Monday, China’s housing ministry reaffirmed those moves, which included requiring higher down payments and mortgage rates for many home buyers, limiting purchases by nonresidents and accelerating construction of affordable housing. The ministry denied rumors that these measures might be canceled and said the policies are still being strictly implemented.

On Thursday, Beijing is due to release broader economic indicators for June and the second quarter, which are widely expected to show China’s economic growth easing from the first quarter’s rate of 11.9%. Market participants will be watching that data for clues of whether concerns about sagging growth in gross domestic product could lead Beijing to relax some of its real-estate-cooling measures.

"We don’t see a change in official policy yet, but we’re expecting banks to start making more mortgage loans by the end of the year. The GDP number will be a telling sign of whether it could happen sooner," said Michael Klibaner, head of research at Jones Lang LaSalle in China.

Real-estate agencies and private research firms generally reported significant drops in sales in May and June, with many consumers waiting to see how the government’s crackdown on the market plays out before making a purchase.

According to the statistics bureau’s figures, nationwide property sales in June declined for the second straight month in volume terms, with the floor area of buildings sold down 3.1% from a year earlier, following a 3.4% drop in May.

Some developers are still doing well: China Vanke Co., the nation’s largest property developer by market share, posted a 28% rise in June property sales, which it attributed to lower prices on new projects.

Despite softening sales, developers still appear to be building new projects, an important consideration for the government as construction is a major employer. The volume of construction starts was up 55% from a year earlier in June. Total investment in real estate is up 38.1% this year from a year earlier, as of the end of June.

That continued strong investment leads Ren Zhiqiang, chairman of property developer Huayuan Group, to think that the government is unlikely to relax its controls anytime soon.

"The June data will make policy makers very comfortable to continue the policies," Mr. Ren said at a real-estate forum Monday. "They won’t easily give up on the controls, as long as property developers keep up relatively fast investment growth and as long as demand persists for land and houses."

The government doesn’t appear to expect the full effect of its tightening policies to appear for a few more months.

Bloomberg News

Traffic passes in front of a housing complex in Shanghai.

"In about a quarter’s time, the property market will probably reach a full correction and prices will fall, but it’s hard to predict the extent of the price falls," Minister of Land and Resources Xu Shaoshi said this month, in comments reported by the official Xinhua news agency.

Some of the tightening measures, at least those left to banks’ discretion, appear to be easing. The government in April encouraged banks to suspend mortgages to buyers of third and subsequent homes, but property agents in Shanghai say people registering to buy a third home have found it easier to get a mortgage in recent weeks. Bank executives say that the requirements that third-home provide down-payments of at least 50% are still being enforced, though.

—Victoria Ruan contributed to this article


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