A cooling real estate market weighed down fixed-asset investment growth on the mainland to the slowest pace in over a decade, official data showed yesterday, boding ill for the world's second-largest economy in 2014 and adding to expectations of housing policy relaxation as early as the current quarter.
Real estate investment grew 16.8 per cent in the first quarter from a year earlier, down from an increase of 19.3 per cent in the January-February period, the National Bureau of Statistics said. That translated into a marked slowdown of 14.2 per cent growth in March alone, the slowest pace in seven months, according to calculations from Barclays.
It dragged down fixed-asset investment growth to 17.6 per cent in the first quarter from the same period last year, the lowest rate - in year-to-date terms - since the end of 2002, disappointing previous expectations for a pickup. Real estate investment accounted for 22.5 per cent of China's fixed-asset investment in the first three months and it affects activities in dozens of other industries as well as other economies including Australia that depend heavily on the mainland's demand for commodities.
"The housing sector now poses the biggest downside risk to the Chinese economy," said Yao Wei, chief China economist of Societe Generale in Hong Kong. "The next batch of policy announcements is likely to be housing policy relaxation at the local government level."
Domestic media have reported cities including Hangzhou and Wenzhou in the prosperous Zhejiang province are discussing easing restrictions on home purchase to boost demand. But a rising number of home buyers are moving to the sidelines as sentiment sours quickly and mortgage tightening since last autumn has made record-high home prices even more unaffordable.
As a result, property sales contracted 5.2 per cent in the first quarter from a year earlier and new starts of property construction plummeted 25.2 per cent as developers turned cautious on expansion. Unsold property rose 22.9 per cent by the end of March to 522 million square metres.
The ominous signs have led to Yao Wei, Barclays' chief China economist Chang Jian and other economists maintaining their gross domestic product forecasts below the official target of 7.5 per cent growth for 2014 despite a better-than-expected first-quarter reading of 7.4 per cent.
Because of the weakening property market, a seasonable rebound in China's economy in the second quarter will only be minimal, as policymakers have so far ruled out the possibility of any stimulus steps, said Eliza Liu, chief China economist of CCB International Securities.
"I hope they will not resort to stimulating the housing market again. That's no good for reform," Liu said.