Stable house prices seen curbing China's options
HONG KONG (MarketWatch) -- Chinese house prices ended a long string of monthly declines in June, effectively limiting Beijing's scope for pursuing further interest-rate cuts this year, according to analysts.
Wednesday's official data showed nationwide house prices unchanged in June from May, ending eight successive declines since last October.
The data added to evidence the market has bottomed -- and seem to have caught policy makers on the back foot, analysts said.
The sudden rebound could prompt some second thinking among leaders about rates, hard on the heels of the People's Bank of China latest policy easing on July 6.
"The rebound in property prices, together with recent news of mega land deals, seems to have left Beijing a bit embarrassed about how quickly land and property prices bounced back again," said Societe Generale analyst Wei Yao in Hong Kong in a note.
Home prices in 25 mainland cities rose on a month-on-month basis in June, up from six that saw month-on-month gains in May, according to the National Statistics Bureau. The agency conducts a survey that tracks activity in 70 major mainland cities.
Also released Wednesday, data compiled by property group CBRE confirmed the rebound, showing nationwide house prices up 0.1% in June from May to end 10 straight months of decline.
Nomura Securities' Zhiwei Zhang said firming house prices would be eyed with concern in government policy-making circles.
"It also reinforces our view that the government will rely more on public investment to boost growth and is less likely to cut interest rates further in the rest of 2012, to avoid a resurgence of a property price bubble," Zhang said in a note Wednesday following the data.
CBRE said rate cuts in July and June triggered a nationwide surge in home transactions, attracting buyers who'd been sidelined in expectation of further declines in prices.
Residential home sales in 11 major mainland cities jumped 8% in June from a month earlier, according to CBRE.
The property research group also noted that developers appeared to regain the upper hand after what had briefly been a buyers' market, with many newly launched projects fetching higher-than-expected prices.
Also contributing to the rapid rebound, the People's Bank in July and June relaxed rules on lending by commercial banks, allowing lending rates to be set as low as 70% of the benchmark rate, down from 90% in May.
The central bank's move to soften rules on lending, announced in coordination with cuts to lending and deposit rates, helped to rekindle lending following a soft patch in May.
Outstanding loans at Chinese financial institutions totaled 59.6 trillion yuan ($9.4 trillion) at the end of June, up 16% from a year earlier.
CBRE said further gains in prices appear likely in spite of efforts by authorities to cool the market as mainland cities struggle to cope with a housing shortage in categories apart from the luxury segment.
About 85.6 million new families were formed in the 10-year period through 2010, compared to 73.3 million housing units in urban areas, according to CBRE.
Perceptions notwithstanding that China suffers from a massive residential overbuilding problem, CBRE said that many real estate companies have tended to focus on high-end residential units, particularly in first-tier cities, and that this has resulted in a lack of supply in other parts of the market.
Luxury units "generally cater to investment demand from affluent private individuals, meaning that many are acquired for capital appreciation," CBRE said.
The property research group added that the government was trying to rectify the shortage by directing more investment into lower-end housing.
A year since peak prices
Societe Generale said it also saw evidence property sales were on the mend given the looming supply-and-demand situation.
Economist Yao noted that the year-on-year slump in transactions has flattened for four straight months dating back to February, with new housing starts were down 16.3% in June from a year earlier, while investment in new property projects was down 11.8% for the month on year.
Average property prices have fallen by 1.9% in first-tier cities from their peak in July 2011, and by 2.8% in second-tier cities since peaking in last August, according to CBRE data.