Home prices to stay firm despite curbs, Fitch says

PUBLISHED : Friday, 18 February, 2011, 12:00am
UPDATED : Friday, 18 February, 2011, 12:00am

Home prices on the mainland may continue to rise in some cities despite the government's efforts to rein in the property market, said Fitch Ratings, the debt rating agency.

'Meaningful price declines are unlikely in 2011,' said Wang Ying, director of Fitch's Asia-Pacific Corporates team.

Global liquidity and domestic inflationary pressures will be the major drivers behind property demand and will support home prices, she said. However, there will not be significant price appreciation because of an increased supply of flats and tight government policies.

The combination of cooling measures recently announced by the central government and restrictions on non-local homebuyers will have the biggest impact on the market, Wang said.

Beijing, one of the first cities to respond to the central government's call for stronger cooling measures, said on Wednesday that non-local residents would be required to prove they have paid taxes in the city for five years before buying a home there.

'We believe this will drag down the sales volume,' said Wang. 'But it's not a reason for property developers to cut prices. It would serve no purpose to lower prices when there are fewer homebuyers in the market.'

Fitch expected property sales volumes to decline year on year in the first quarter as buyers remain cautious and await further tightening measures. But sales volumes during the rest of this year are likely to be stable or modestly higher, driven by concerns over inflation and, in certain cities, by fears about potential property taxes.

In the past few months, Beijing has raised interest rates and increased bank reserve requirements to curb lending and observers say the government is likely to adopt an even more aggressive approach to tightening liquidity this year.

China Banking Regulatory Commission chairman Liu Mingkang on Wednesday warned of the credit risks in the property market, vowing to take many more efforts to address the problem.

He said the banking system will focus on how to prevent such risks this year. This includes closely monitoring and inspecting expensive land deals and urging banks to be more prudent about lending to heavily indebted property developers that are aggressively expanding.

However, Wang said, tightened bank lending will mainly affect small developers with weak market positions. Large and mid-sized developers with strong brand names and high-quality land banks still have good access to project loans and maintain ample unutilised bank credit lines, she noted.

'In addition, most Hong Kong-listed Chinese property developers achieved or exceeded their target contracted sales in 2010, ending the year with solid cash balances that were sufficient to cover their short-term debt obligations,' she said.