China measures keep lid on house prices

BEIJING - China's property prices climbed at the slowest pace in six months last month as the Government clamped down on speculation to prevent asset bubbles and keep housing affordable.

Prices in 70 major cities climbed 10.3 per cent from a year earlier, the statistic bureau's newspaper, China Information News, reported yesterday. That was less than an 11.4 per cent increase in June.

China's banking regulator said last week that the Government would maintain policies to cool the property market, dampening speculation that slowing economic growth would encourage an easing of the measures.

The regulator has told lenders to conduct stress tests to gauge the impact of home prices falling as much as 60 per cent in the hardest-hit markets.

The China Banking Regulatory Commission said last week that the stress tests didn't reflect the watchdog's outlook on the nation's real-estate market.

On the southern tropical island of Hainan, prices in the city of Sanya rose 50.4 per cent in July from a year earlier, the biggest increase in the country, while sliding 1.3 per cent from the previous month. In Beijing, the gain was 12.4 per cent from the same month in 2009.

In Shanghai, the increase was 6.8 per cent.

The value of July property sales fell 19.3 per cent to 306.6 billion yuan ($45.3 billion) from a year earlier.

By floor area, the decline was 15.4 per cent to 64.7 million sq m.

Restrictions imposed by the Government include higher down-payment and mortgage rates for multiple-home buyers and instructions for lenders to halt third-home loans in areas with "excessive price gains".

Price increases have slowed from 12.8 per cent in April, a record for the data series, which began in 2005.

Prices were unchanged in July from June, following a 0.1 per cent month-on-month decline in June that was the first decrease in 16 months.

The Government may take "a cautious approach to any further tightening of the property market, especially as the pace of growth has moderated and the US economy's outlook remains uncertain", said ANZ economist Liu Li-Gang.

Investment in real-estate development rose 37.2 per cent to 2.39 trillion yuan in the first seven months of the year from a year earlier, the statistics bureau newspaper said.

That compared with 33 per cent from July alone and a 38.1 per cent gain in the first six months, China's property market is beginning a "collapse" that will hit the nation's banking system, Kenneth Rogoff, a Harvard University professor and former chief economist of the International Monetary Fund, said last month.

In contrast, Stephen Roach, Asia chairman of Morgan Stanley, sees a "micro bubble" confined to luxury properties and Zhang Xin, billionaire chief executive officer of developer Soho China, said: "I don't see any bubbles."

Results from previous stress tests show that the ratio of non-performing real estate loans among Chinese lenders would rise by 2.2 percentage points if home prices drop 30 per cent and interest rates rise by 108 basis points, the person with knowledge of the tests said, declining to be identified because the regulator's requirement hasn't been publicly announced.

Pretax profits would fall 20 per cent under that scenario.

A basis point is 0.01 percentage point.

China's new property loans dropped 26 per cent in the first six months from a year earlier, central bank data show.

- BLOOMBERG