Efforts to cool home prices may backfire, mainland warned

The World Bank yesterday warned that the mainland government's tough measures to rein-in runaway home prices could cause a sudden downturn in the market, sending shock waves through the property sector.

Mainland developer stocks reacted negatively to the World Bank report which also said: 'Shocks to the property market... would slow down construction significantly [and] could have a large impact on the economy and on bank balance sheets.'

'Moreover, a property downturn could affect the finances of local governments, which do a lot of the infrastructure investment and are important clients of the banking system,' the report said.

Shares of developer Country Garden Holdings responded to the report by declining 4.79 per cent to HK$3.18; Beijing Capital Land fell 4.76 per cent to HK$2.70; Shimao Property Holdings lost 3.41 per cent to HK$10.76; and China Overseas Land and Investment dropped 2.19 per cent to HK$15.14. China Vanke, the mainland's largest listed developer, fell 1.07 per cent to 8.31 yuan.

Mainland banks were last week ordered to conduct more stress tests on their property lending as the government moved to check rising prices.

The World Bank said it was 'too early' for the central authority to halt monetary tightening because inflation expectations remained high and much of the impact of soaring global commodity prices was still in the pipeline