China’s property prices rose at the second-fastest pace on record in May, showing little sign yet that the government crackdown on speculation will work to avert an asset-price bubble.
The 12.4 percent gain compared with a record 12.8 percent increase in April from a year earlier, the National Bureau of Statistics said in a statement its website. The data series, covering 70 cities, began in 2005. The value of sales slid 25 percent.
Today’s figures, along with data showing a bigger jump in exports than forecast in May, signal the dangers of maintaining stimulus measures adopted during the global recession. Concern that Premier Wen Jiabao’s government will step up policy tightening, along with dangers posed from Europe’s debt crisis, has sent China’s benchmark stock index down 21 percent this year.
“Housing prices continue to grow apace, it appears the government measures so far have only affected the transaction volumes,” said Liu Li-Gang, an economist at Australia and New Zealand Banking Group Ltd. in Hong Kong. “The government will have to work more to contain the strong demand” for property, he said, adding that higher interest rates would be most effective.
The Shanghai Composite Index dropped 0.7 percent to 2,565.82 at 10:01 a.m. local time, underperforming the broader region on concern that the government will take further measures to slow the economy. The MSCI Asia Pacific index rose 0.3 percent.
First Slowing
Sales in Beijing, Shanghai and Shenzhen, the nation’s wealthiest cities, fell as much as 70 percent in May from the previous month and land sales for residential development projects in 70 Chinese cities fell 14 percent, the official Shanghai Securities News reported earlier this month.
An index tracking 34 real-estate companies has plunged about 28 percent this year, the worst performer among five subgroups of Shanghai’s stock benchmark. It slid 1 percent today.
Sales by China Vanke Co., the nation’s biggest publically traded property developer, dropped 20 percent in May from a year ago, and Guangzhou R&F Properties Co.’s contracted sales last month shrank 48 percent on year, according to the developers’ stock exchange filings.
Bank Loans
“These exceptionally low transaction volumes are partly a result of banks’ unwillingness to lend and also the result of buyers taking a step back” to wait and see what the government’s next measures may be, Michael Klibaner, head of research in China for Jones Lang LaSalle, a real-estate services company, said earlier this week.
Officials may introduce a trial property tax after already tightening sales rules for developers, raising some down payment requirements and restricting loans for multiple-home buyers, according to state media.
Besides industry-specific measures such as requirements for larger down-payments for some homes, the government on May 2 raised banks’ reserve requirements for the third time this year to contain overheating risks after first-quarter economy expanded at the fastest pace in almost 3 years.
Today’s trade report separately indicated that the economy has yet to feel the impact of the debt crisis in Europe, China’s biggest trading partner. Shipments abroad climbed 48.5 percent from a year earlier, while imports gained 48.3 percent, leaving a $19.5 billion trade surplus.
‘Prone’ to Bubble
China’s housing market is “prone” to a bubble because of immigration to the nation’s cities and high savings, according to economists at Barclays Capital. Chinese savers lack the breadth of investment and financial options available in developed countries, and U.S. policy makers have pushed their counterparts to help develop more options.
“The government’s recent measures to cool the housing market focus on limiting investment and increasing the supply of public and low-cost housing,” Barclays economists Peng Wensheng and Chang Jian wrote in a June 7 report. “This represents a regime shift in housing policy” and more measures are likely to come, they wrote.
Prices may tumble between 20 percent and 30 percent in coming quarters, according to the Barclays analysts’ projections. The impact on the economy will be cushioned by rising public housing construction, they wrote.
Hainan’s Boom
Last month’s biggest year-on-year price gains were in Hainan, the southern island being developed as a tourist destination. Hainan’s Haikou and Sanya cities reported annual increases of 52.8 percent and 50.8 percent. Among the 70 cities covered, 12 had price declines in May from the previous month, including Beijing, Nanjing and Guangzhou. Eastern China’s Hangzhou saw the biggest monthly drop, at 0.6 percent.
Investment in real estate rose 38 percent to 1.39 trillion yuan ($ 203 billion) in the first five months of this year, after a 36.2 percent gain in the January-April period, according to the statistics bureau.
Property investment accounts for about 10 percent of gross domestic product and construction work consumes half of the nation’s output of steel and 36 percent of the aluminum produced, JPMorgan estimates.
Reserve Requirements
Besides industry-specific measures such as requirements for larger down-payments for some homes, the government on May 2 raised banks’ reserve requirements for the third time this year to contain overheating risks after first-quarter economy expanded at the fastest pace in almost 3 years.
Property sales by area rose 22.5 percent in the first five months to 302 million square meters (3.25 billion square feet), the statistics bureau said today. The pace is compared with an increase of 32.8 percent between January and April. The area under construction rose 72.4 percent from a year earlier to 615 million square meters, the statistics bureau said.
For the full year, property sales may shrink 30 percent from 2009, Jing Ulrich, Hong Kong-based chairwoman of China equities and commodities at JPMorgan Chase & Co., said before today’s release.
“China’s property market is one of the top concerns of global investors as transactions have tumbled,” Jing said. “About 50 sectors in China, especially the steel, cement and aluminum industries, are closely tied with property-market growth.” 
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