China’s property prices climbed at the slowest pace in six months in July as the government clamped down on speculation to prevent asset bubbles and keep housing affordable.
China’s banking regulator said Aug. 6 that the government will maintain policies to cool the property market, damping 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 percent in the hardest-hit markets, a person with knowledge of the matter said last week.
"The government’s resolve on property curbs will be tested as increasing risks to external demand and slowing domestic production and investment cool growth later this year,” Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., said before today’s release. “The government may continue to rein in property speculation, but some of the most stringent measures may be adjusted at the end of this year when price corrections start to spur transactions.”
The China Banking Regulatory Commission said last week that the stress tests don’t reflect the watchdog’s outlook on the nation’s real-estate market.
Sanya, Beijing
On the southern tropical island of Hainan, prices in the city of Sanya rose 50.4 percent in July from a year earlier, the biggest increase in the country, while sliding 1.3 percent from the previous month. In Beijing, the gain was 12.4 percent from the same month in 2009. In Shanghai, the increase was 6.8 percent.
The value of July property sales fell 19.3 percent to 306.6 billion yuan ($ 45.3 billion) from a year earlier. By floor area, the decline was 15.4 percent to 64.7 million square meters (696 million square feet).
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 percent in April, a record for the data series, which began in 2005. Prices were unchanged in July from June, following a 0.1 percent month-on- month decline in June that was the first decrease in 16 months.
‘Cautious Approach’
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 U.S. economy’s outlook remains uncertain,” said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd.
Investment in real-estate development rose 37.2 percent to 2.39 trillion yuan in the first seven months of 2010 from a year earlier, the statistics bureau newspaper said. That compared with 33 percent from July alone and a 38.1 percent 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 July 6.
Stress-Test Results
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 percent 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 percent under that scenario. A basis point is 0.01 percentage point.
China’s new property loans dropped 26 percent in the first six months from a year earlier, central bank data show.
The government needs time “to assess the impact of the property measures,” said Kevin Lai, a Hong Kong-based economist at Daiwa Capital Markets. “When property prices are still so firm, it’s very difficult to reverse policies, otherwise it would be self-defeating.”
China’s economic growth slowed from 11.9 percent in the first quarter to 10.3 percent in the April-to-June period.

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