Wen Jiabao

Wen's remarks give market a boost

PUBLISHED : Wednesday, 09 July, 2008, 12:00am
UPDATED : Wednesday, 09 July, 2008, 12:00am

Undertaking on rapid economic growth eases fears of more measures to rein in sector

Fears that the mainland's faltering property market could be in for further austerity measures have receded in the wake of an undertaking from Premier Wen Jiabao that policy moves will continue to target rapid economic development.

Analysts and property experts said the comments from Mr Wen on Sunday indicated the central government was confident that no extreme measures were required to beat inflation and that economic growth was back on top of the policy agenda.

They expect no further measures but see relaxation of existing measures as unlikely in the short term.

Speaking at the end of a three-day trip to Jiangsu province and Shanghai, Mr Wen said the country must promote good and rapid development of the economy, while at the same time keeping inflation at an acceptable level.

He added that 'the national economy under macroeconomic control measures is continuing to develop in the expected direction. The general situation is good', Xinhua reported.

Mr Wen's vote of confidence in the economy followed a commentary in Xinhua on Friday that highlighted the importance of a stable property market.

'This is a change of tone for economic policy,' said Citic Securities property analyst Wang Derong.

'It indicates the central government will not release any further measures aimed at containing economic growth and the property market,' Mr Wang said.

Market watchers described the remarks as 'a breath of fresh air' to the real estate market, which has suffered a sustained decline in prices and activity in some cities such as Shenzhen and Guangzhou over the past 10 months.

Mr Wang expected banks would ease lending conditions imposed on developers in the wake of the apparent green light from Mr Wen.

Investors endorsed this view and property stocks responded to the remarks, rising on Monday although retreating yesterday.

However, agents believe the physical market would be slower to respond and prices are unlikely to rebound anytime soon, with further declines expected in some of the overbought markets.

'Prices may adjust downwards further in those markets where they have already surpassed the affordability of many prospective buyers,' said Mr Wang.

Liu Xiahui, an economist at the Chinese Academy of Social Sciences, predicted prices in some cities such as Shanghai and Beijing would continue to retreat.

But in Shenzhen or Guangzhou - where prices had already retreated heavily - the comments from Mr Wen could help the market stabilise at its present levels.

'Following a fall of more than 30 per cent, prices in Shenzhen have reached a reasonable level,' Mr Liu said.

According to Citic Ka Wah Bank's latest research report, average residential prices in Shenzhen fell 36.5 per cent at the end of May compared to October last year. By contrast, home prices in Shanghai and Beijing edged higher despite falling sales volumes since October last year.

Mr Liu expects no further tough measures to hit the property market though the government is likely to remain vigilant and will closely monitor housing prices for signs of an excessive rebound in the market. 'It will not relax the existing austerity measures unless consumer prices fall to below the targeted 5 per cent.'

Consumer prices rose at an annualised rate of 7.7 per cent in May, easing from a 12-year high of 8.7 per cent in February. Beijing would now likely put further interest rate increases on hold in a move to indirectly give relief to the housing sector, he said.

Liao Qun, chief economist and strategist of China banking at Citic Ka Wah Bank, agreed.

But he sees little chance of an early relaxation of the current austerity measures until Beijing is confident that the property market has stabilised, and this is unlikely to happen until the first half of next year.

Any relief on the higher down payments and mortgage rates for second-home buyers was therefore not likely in the short term, he said, since these existing measures were important to keep the lid on excessive investment.

In September, the central bank raised the required down payment for a property to 40 per cent from 30 per cent generally, if the buyers already had a flat under mortgage. Interest rate for the mortgage would be 1.1 times the normal rate for those buying second flats.