Warning of correction as property prices stall

Home prices in about two-thirds of mainland cities remained unchanged or fell last month for a second straight month, prompting warnings from analysts about a possible price correction.

Figures released by the National Bureau of Statistics yesterday showed residential flat prices rose in only 24 of the 70 cities surveyed.

They dropped in 17 and remained unchanged in 29, including first-tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen.

'We think September probably marked the beginning of a correction, but the central government wouldn't want to ease tightening just yet,' said Yao Wei, an economist at Societe Generale.

The mainland's property market has been reeling under a series of government policies, such as home purchase restrictions in about 40 cities and increased downpayment requirements and mortgage rates on some varieties of homes, aimed at curbing prices.

Yao said she believed the government was targeting a price correction of 5 to 10 per cent and that it would be a few more months before there is any general policy easing.

'Considering the difficulties of managing the pace of deflating a bubble, we expect some risk of ... 10 to 20 per cent downside in China's property prices,' she said.

Chongqing recorded the largest month-on-month drop in new home prices last month, of 0.4 per cent.

Kunming, Changsha, Luoyang and Yinchuan recorded the steepest gain, of 0.3 per cent.

Wenzhou was the only city that recorded a year-on-year drop in prices. Flats in the city, where companies are facing severe financial problems, dived 0.5 per cent last month from a year ago.

Clement Luk Shing, chief executive of Centaline Property's division in east and northeast China, said property sales have weakened since last month.

Sales during the National Day golden week holiday dived 50 per cent from a year ago.

'Since it's obvious that sales in September were worse than expected, we see a change in developers' strategies - they are adjusting prices to boost sales,' Luk said.

'Some developers have started cutting prices by 10 per cent, or even as much as 20 per cent.

'I believe there will be a price war this month and next month as developers rush to cash in and meet their annual sales target.'

Luk said there was no sign of the government easing the curbs.