New home prices rose in 67 Chinese cities in June, with growth in Beijing and Shanghai accelerating for the first time since the government stepped up efforts this year to curb growth.
In Beijing new home prices rose 2.2 percent last month from a year earlier, compared with 2.1 percent in May, while in Shanghai they climbed 2.2 percent, compared with 1.4 percent growth the previous month, the statistics bureau said on its website today.
China’s cabinet said last week it will expand measures to rein in residential prices to smaller cities after limiting home purchases in metropolitan areas including Beijing and Shanghai. The government is intensifying real-estate restrictions nationwide after developers posted gains in first-half sales and housing transactions climbed 31 percent last month, even as China increased down payments on some mortgages this year.
“China has negative interest rates right now with high inflation, so it’s not surprising that people are back to higher-yielding assets such as real estate,” said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd. The government’s housing restrictions “simply have limited effect in controlling home prices.”
China’s June inflation hit a three-year high of 6.4 percent and has breached the government’s 4 percent ceiling every month this year. The central bank raised interest rates five times since October, including the July 6 decision to increase the one-year deposit rate to 3.5 percent.
Home prices in the southern business hub of Guangzhou rose 5.4 percent in June from a year ago, compared with 5.1 percent in May. Prices in the western city of Chongqing jumped 5.8 percent, compared with 5.3 percent in May, according to the statistics bureau. More than half of the 70 cities the government tracks matched the gains in May or posted faster growth, the data showed.
Urumqi, the capital of western Xinjiang province, posted the biggest gain at 9.2 percent in June, while the southern tourism city of Sanya in Hainan island had the biggest decline of 2 percent last month.
China Vanke Co., the country’s biggest developer, reported this month that sales in the first six months rose 79 percent to 65.7 billion yuan ($10.2 billion), while Evergrande Real Estate Group Ltd. (3333) said on July 11 that sales more than doubled to 42.3 billion yuan.
Shown All Cards
“The government has shown all the cards it has on the property market,” Yao Wei, an economist at Societe Generale SA in Hong Kong, said ahead of the data, referring to all possible measures by the government. “They just haven’t played the cards well.”
The measure tracking property stocks on the Shanghai Composite Index fell 0.4 percent to the lowest since June 29 at the 11:30 a.m. local time break, the most among the five industry groups on the benchmark gauge.
The new tightening measures last week are a “wake-up call” for developers that policy relaxation in the second half this year was likely to be wishful thinking, Credit Suisse Group AG said in a July 15 report.
“China is still largely a policy driven market,” Jinsong Du, a Hong Kong-based property analyst at Credit Suisse, said in an interview on Bloomberg Television ahead of the data. “The government is still confident it can maneuver it. I do see the market continue to weaken, but we’re not pricing in any hard landing.”
Existing home prices in Beijing rose 1.4 percent last month from a year ago, while in Shanghaithey jumped 2.4 percent.
“The data explains why the government plans to extend real-estate curbs from these two cities to other parts of the country, and suggests a further slowdown in the property sector,” said Dariusz Kowalczyk, a Hong Kong-based senior strategist at Credit Agricole CIB in an e-mailed statement. “A slowdown in this sector would help further reduce economic growth.”
China plans to draw up a list of smaller cities that will be required to limit home purchases by families, China Business reported today, citing an unidentified person close to the Ministry of Housing and Urban-Rural Development.
More home purchase restrictions will force developers to cut supplies and push up home prices again, said ANZ’s Liu.
Against Government’s Will
“This will go against the government’s will to control home prices,” he said.
Housing transactions in June increased to 499.2 billion yuan, compared with 380.9 billion yuan the previous month, based on first-half data from the statistics bureau on June 13. Sales in the first half climbed 22 percent to 2.1 trillion yuan from a year earlier, according to the data.
Chinese developers’ outlook was cut on June 15 to “negative” from “stable” by Standard & Poor’s, which said tighter credit and further government curbs may lead to rating downgrades in the next year.
Still, private data showed the country’s housing market remained robust. Home prices rose for a 10th month in June, SouFun Holdings Ltd., China’s biggest real-estate website, reported on July 1.
Cheung Kong (Holdings) Ltd., the developer controlled by Hong Kong billionaire Li Ka-shing, said on July 14 it is “proper and adequate” for China to impose measures to cool its property market. Rising home prices run the risk of becoming a social problem, Executive Director Justin Chiu said in Shanghai, where he unveiled three new projects.
“We do hope prices will remain stable, otherwise the government will take more action,” Chiu told reporters. “As a property developer, we don’t want prices to rise too quickly either and want prices to be stable.”
China started reporting data for 70 cities it monitors on a monthly basis this year, after reporting an index for average home prices nationwide.