China property rebound may spell danger
ReutersA building site in central Beijing.
HONG KONG (MarketWatch) –- A pickup in residential-real-estate sales should be seen as a negative indicator that could force an about-face by Chinese policy makers, analysts said Tuesday.
Analysts at Singapore's UOB flagged concern about an overly quick turnaround in the mainland-China property market, cautioning that a snap rebound in prices would be viewed with grief in Beijing
UOB described recent residential-sales gains as a "fierce reaction" to the People's Bank of China lowering its lending and deposit rates by a quarter-point earlier this month.
"With the recent interest-rate cut and, thus, cheaper mortgages, the housing market is seen heating up again in some major cities," UOB analysts said in the note.
Chinese home buyers were now expecting more policy-easing measures and were also increasingly wary that developers could soon lift prices, the analysts said.
Underscoring the mounting concern, the state-run Xinhua news agency on Tuesday said there was no evidence of an impending surge in housing prices.
The report noted some instances of panic purchasing by home buyers in what it said was a misinterpretation that the government had abandoned efforts to cool the housing sector.
"Genuine home buyers are more sensitive to price changes, and given that property-tightening measures haven't changed, a rise in prices would only put a lid on demand," Xinhua said.
There was no shortage of new housing to soak up increased sales, the report said. It cited data from a research unit of the State Council as showing 4 billion square meters of property was constructed last year, compared with sales of just 1 billion square meters.
It added that prices appeared to be stabilizing -- in line with the government's goal. It noted that nationwide prices fell at a gentler pace in May for the second straight month.
Sales activity in China's leading 18 cities rose 4% during the past week alone, according to data compiled by UOB. Activity was also up 9% against levels in May and was 58% higher than the weekly average in 2011.
Despite the increased buying, nationwide housing prices remained in a downward trend, a pattern that's been in place since September.
Data released Monday by the statistics bureau showed that 43 of the 70 cities tracked saw property-price declines in May, matching the number of cities reporting price declines in April. See related story on Chinese house price decline in May.
Weekly data cited by UOB also confirmed the softening, with the brokerage's 18-city index down 0.2% on a week-over-week basis.
Other data cited by UOB showed prices in the largest cities off 3.4% from the prior week, while China's smaller urban centers saw prices drop 1%.
Watch the prices
The analysts warned that a return to price growth could prompt a policy walk-back in Beijing and they urged investors holding shares of major property developers to keep an eye on developing price trends.
"We think that it is important to monitor the pricing strategies of developers because an uptrend in average sales prices might invite an unfavorable reaction from the government," UOB said.
Fears of an overheating Chinese property market were back in focus Tuesday following a mainland media report that developer
The price Evergrande paid was more than 80% higher than that paid for a nearby plot by a rival developer last year. See related story on record Guangzhou land deal.
The government land auction in Guangzhou took place Monday and wasn't reported until after the release of UOB's research, but the UOB analysts said Beijing would resist losing its hard-won control over housing prices as the government seeks to avoid a serious economic downturn.
"Now that there are more rumors about the possible relaxation of property measures, along with the housing market heating up again, we think that the central government is very likely to remain cautious about not showing any signs that they might relax property-specific measures soon," UOB said.
Meanwhile, Societe Generale said in a note Tuesday there were signs that China was maintaining a cautious approach toward credit growth directed at the real-estate sector, even as it unveiled reforms that liberalize the country's interest-rate regime.
SocGen economist Wei Yao in Hong Kong said data on real-estate lending so far is in line with the PBOC's stated policy of maintaining its tightening stance in the property category.
"The central bank is doing what it says, as property-investment financing sourced from domestic bank loans has slowed continuously since the beginning of the year," according to Yao.