China home prices to keep rising over next few months, say analysts

PUBLISHED : Wednesday, 13 November, 2013, 4:01am
UPDATED : Wednesday, 13 November, 2013, 4:01am

Home prices in major mainland cities will continue to rise for the rest of this year, despite recent cooling measures, even though transaction volumes will probably fall, industry analysts say.

Shanghai, Shenzhen, and Beijing have in the past few weeks stepped up efforts to cool their real estate markets as annual increases in home prices remain stubbornly above 20 per cent, exceeding local leaders' targets of below 10 per cent for the year.

Surging home prices have fuelled social discontent and local officials, most of them in the first year of their new posts, are under pressure to make homes more affordable.

The three cities have raised deposits for second-home buyers to 70 per cent from 60 per cent. Shanghai has made it more difficult for non-locals to buy a new home in the city, while Beijing has ratcheted up pre-sale licences for property projects priced at over 40,000 yuan (HK$50,900) per square metre.

Meanwhile, mainland banks are cutting mortgage loans, a year-end ritual as their lending quotas run out.

"These measures will cool market sentiment and affect transactions," said Yang Chenqing, a senior analyst with China Real Estate Information Corporation, a real estate data provider. "But they are relatively mild measures and will only ease housing inflation, instead of stopping home price gains."

Analysts said the recent measures were designed to curb short-term demand, pushing buyers to the sidelines. Eventually, the cities would need to increase supply to meet pent-up demand, though that process would take longer.

Official data showed home prices in Beijing rose 20.6 per cent in September from a year ago, the fastest among 70 major cities tracked by the authorities, followed by an annual rise of 20.4 per cent in Shanghai, 20.2 per cent in Guangzhou and 20.1 per cent in Shenzhen.

The National Bureau of Statistics is scheduled to announce October home price data on November 18. Private surveys showed the mainland's housing inflation accelerated in October.

"Home prices will keep rising for the rest of this year and will probably peak between December and next February," said Yang Hongxu of E-house China R&D Institute in Shanghai. He predicted property transactions would remain at high levels in the last two months of this year and fall next year. Growth in the volume of residential property sales slowed to 22.3 per cent in the first 10 months of this year from an annual increase of 23.9 per cent in the first three quarters, data from the National Bureau of Statistics shows. The bureau did break out the sales figures for October alone.

Some industry observers expect the central government to extend a property tax on expensive and spacious homes to cities beyond its current test-beds of Shanghai and Chongqing. They are waiting to parse possible announcements from the third plenary session of the Communist Party's Central Committee, which ended yesterday.

Part of this year's housing inflation was fuelled by strong mortgage loans.

In the first half of the year, mainland banks extended 1.3 trillion yuan of new loans to the property sector, including those to developers - almost the full-year total of 1.35 trillion yuan last year. In the third quarter, another 600 billion yuan was lent to the sector.

"You either accept higher mortgage rates or wait longer now," a loan officer at a state-owned bank in Beijing said.