Property prices poised to keep rising
By He Peng (China Business Weekly)
Updated: 2004-12-17 15:39

The direct influence of the annual Central Economic Work Conference on China's booming real estate market remains unclear, but analysts seem assured that surging property prices are unlikely to be reined in.

Xue Jun, an economist with the Institute of World Economics & Politics, under the Chinese Academy of Social Sciences, said that, despite some policy shifts, the tone of the meeting was in tune with current measures in adjusting the real estate sector, such as maintaining stable fixed asset investment, tightening credit and strengthening land control.

"The property price will keep growing for the next year due to limited supplies caused by tightening policies," Xue said.

The three-day closed-door Central Economic Work Conference, which decides the trend of China's economic policies, closed on December 5 with a conclusion to continue and contain excessively rapid growth in fixed asset investment.

The macroeconomic adjustments are timely and effective, and the government would "strengthen and improve" its tightening measures next year, according to the official report of the economic summit.

China has adopted a slew of cooling measures -- titled as "macro-economic adjustments" -- since last year, including curbing investment in sectors such as steel and property, and the first interest rate increase in nine years.

Contrary to policy-makers' expectations, the country's property price has shown robust growth this year.

The National Bureau of Statistics indicated late last month that average property prices in China's main cities rose 11.7 per cent year-on-year in the first 10 months. Prices for residential and commercial property averaged 2,758 yuan (US$333.10) per square metre, with the average price of residential property rising 10.2 per cent to 2,566 yuan (US$309.90) per square metre between January and October.

The investment growth rate only slightly decreased while vacancy rates have been largely reduced.

Investment in homes, offices and other commercial real estate increased 28.99 per cent to 952.6 billion yuan (US$115.05 billion), up 28 per cent in the first nine months of the year.

"With the current situation, the tightening control is unlikely to change. Policy-makers may hope to decrease investment growth rates in property sector," said Wang Hong, an associate professor of property at Tsinghua University.

Wang said that it is very hard to predict whether any concrete measures will be enacted after the central economic meeting.

Leading real estate developers say given the ongoing macroeconomic control, it is more difficult to get development loans and mortgage for housing buyers, but most of them manage to finance their projects in the booming market.

While insisting on the necessity to control investment, the economic summit called for "paying more attention to the use of market and legal measures" in guiding macroeconomic adjustments.

The central economic conference also stressed that during macroeconomic adjustment periods, projects in discouraged sectors will be treated individually. Some of these projects will be maintained while others will be curbed.

In relation to the property market, Wang said this tone may mean that credit controls will be more specific. Loans toward some projects, such as luxury villas, might be subject to strict control while the ordinary housing projects may be greeted with a relatively loose regulation.

Still, how to judge concrete projects remains a difficult challenge for Chinese bankers, Wang said.

For Liu Junning, the orientation of the ongoing tightening lending policy is not for curbing property prices but for reducing financial risks originating from massive property development loans and housing mortgages.

"With the continuation of the macroeconomic adjustment, the policy may be focused on developing more operable measures to distinguish high-risk property investments from safe ones," Liu said.

Pan Shiyi, chairman of Beijing's leading developer SOHO China Co Ltd, said that government measures to adjust the property market has been shifting from initial administrative measures to market-oriented ones, such as increasing bank interest rates and allowing interest-rate floating.

On October 28, the People's Bank of China, China's central bank, raised the benchmark, with one-year lending rates changes from 5.31 per cent to 5.58 per cent, and one-year deposit rate from 1.98 per cent to 2.25 per cent.

The central economic meeting's stress "paying more attention to the use of market and legal measures," implying that the property market may receive less impact from administrative interfering measures, Pan said.

Close