Curbs warning as Home prices head for rebound

PUBLISHED : Wednesday, 25 July, 2012, 12:00am
UPDATED : Wednesday, 25 July, 2012, 12:00am


If recent land auctions across the mainland are anything to go by, the retreat in home prices this year could be due to turn, but some analysts warn that a full recovery might trigger new curbs on property demand and price growth.

Buoyant bidding from some cashed-up developers is lifting land prices in major cities and has spurred talk of a turnaround in sentiment.

'Developers think the property market - especially the housing market - has bottomed,' said David Zhang, research director at Centaline China in Beijing.

Moody's Investors Service also said prices reflected developers' expectation that a recent rebound would continue.

The rating agency said that despite officials saying strict policies would remain in place, they had not yet tightened existing restrictions to dampen recent rises in real estate activity.

But Alan Jin, a property analyst at Japanese brokerage house Mizuho Securities, warned of dangers in the second half of the year if housing prices rebounded strongly.

'Market optimism has been built on a highly unlikely scenario in which volumes will keep rebounding while housing prices remain flat,' Jin said. On the contrary, a rebound in volume would push up prices, he said, and any sharp rise in prices could trigger more government measures.

'The central government still wants to control housing prices,' he said.

The most eye-catching deal took place in Beijing earlier this month.

On July 10, private developer Sinobo won a residential site in Haidian district with the 46th bid, paying 2.63 billion yuan (HK$3.23 billion), or 33,831 yuan per square metre. That made it the most expensive site in the capital in terms of floor area.

The developer's offer included an undertaking to allocate 16,400 square metres of floor area for subsidised housing.

Centaline's Zhang estimated that if this area was excluded, the price would be 41,500 yuan per square metre, making it the most expensive residential site on the mainland.

Lee Wee Liat, head of property research at BNP Paribas Securities, said the recovery in demand for land followed stronger home sales, which had improved developers' funding and balance sheets. 'This started only in the second quarter of the year,' he said.

Recent interest rate cuts and a relaxation of required reserve ratios have lowered developers' borrowing costs and supported liquidity, making them more willing to expand, lest they miss opportunities to benefit from a sustained recovery in the property market, according to Moody's.

Yu Kam-hung, senior managing director of valuation and advisory services in Greater China for property consultancy CBRE, said property sales started to pick up in March. By May, housing turnover had rebounded sharply, with national real estate transactions up 15 per cent month on month to a total area of 72.9 million square metres, and sales up 20 per cent month on month to 451.1 billion yuan.

In June, the average price of new housing sales in the 100 largest cities was 8,688 yuan per square metre, up 0.05 per cent on May, ending a declining trend in place since September.

As a result, developers started bidding more aggressively at auction, Yu said. Early last month, successful bids for sites in 20 cities were 14 per cent higher than opening bids, he said.

In the middle of the month, Evergrande Real Estate won a commercial site in Guangzhou's new business district, Zhujiang New Town, for a city record price of 32,968 yuan per square metre.

Last week, a wholly owned subsidiary of Hong Kong-listed Metallurgical Corp won the bidding for a residential site in Beijing's Daxing district for 2.2 billion yuan.

The sale price was 45 per cent higher than the opening bid.

On Friday, China Overseas Land and Investment paid 2.97 billion yuan, or 13,026 yuan per square metre, for a site in Tianjin, which made it the most expensive site in the local market in terms of floor area.

In response to the strong demand from developers, city governments have begun releasing more land to boost revenue.

The Shanghai municipal government is set to sell a site close to the city's train station, with bidding set to open at 4.746 billion yuan, while Nanjing says it will release land sites covering 2.3 million square metres.

Some analysts said it was still too early to interpret the revival as a sign of a full recovery. While some developers are now more eager to buy land, the number seeking to expand their land banks is still comparatively low, according to CBRE's Yu.

Land in developed areas of each city is most in demand. 'Generally, those plots have obvious advantages and good prospects for appreciation,' Yu said.

Rising land prices need not trigger an immediate rise in house prices, he said. But if they did, the government might introduce new measures to put the brakes on.