Economy

Cost of housing to fall but no 'hard landing' expected

By Jin Zhu (China Daily)
Updated: 2011-07-04 09:14

BEIJING - The nation's high housing prices will meet a downward inflection point in the third quarter of the year but the sector is not expected to suffer a "hard landing", according to a report released on Saturday by the Beijing-based Renmin University of China.

More Chinese cities saw lower price growth for commercial homes during the first six months of the year amid strict measures aimed at tightening the property market and lowering housing prices, noted a report by the Institute of Economic Research at Renmin University of China.

"Some cities experienced a downward trend in property prices in the January-June period, though without a significant drop," the report said.

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In May, month-on-month price growth for new commercial homes was reported in 50 out of 70 major cities, according to the latest statistics from the National Bureau of Statistics (NBS). That compared to 56 cities reporting month-on-month growth in April.

New home prices declined from a month earlier in nine cities and stood unchanged in 11, while 27 cities posted smaller monthly price gains, the NBS said.

The country has introduced a series of measures to curb rising property prices, including restricting residents in 35 major cities from buying second homes, requiring higher down payments and charging property taxes in Chongqing and Shanghai. Policies have also raised developers' borrowing costs.

The country's property market now has an oversupply of homes, according to Wang Jinbin, a leading economist at Renmin University of China.

"The total stock of commercial homes in the first three months among the 136 listed property companies will perhaps require two years or even more to digest," he said, citing statistics in the report.

In Beijing, for instance, the total stock of commercial homes stood at 101,912 available properties as of June 7, local official housing figures showed.

And for many home developers, fund shortages are becoming more of an issue, Wang added.

Some analysts and organizations are also starting to forecast declines in home prices, with a growing expectation that the government will not relax its policy stance before the end of the year.

According to a report by the National Institute of Property Finance and Beijing Beta Consulting Center, China's first-tier cities will probably see a 30-percent fall in property prices. Second-tier cities could see drops of 10 to 20 percent.

"An obvious price drop in the property market is expected to appear in the second quarter of next year when a large amount of government-subsidized houses will pour onto the market," said Li Chang'an, a public policy professor at the Beijing-based University of International Business and Economics.

According to the government's plan, construction of 10 million government-subsidized homes will start before the end of October.

Meanwhile, demand for homes will remain high because the country will see accelerated urbanization during the next 15 years, the report said.

"In addition to the current strict measures to cool down the property market, the government should also strive to increase the incomes of local residents, which is the best way to bring down the current rather high ratio of housing price to income," Wang Jinbin said.

Hu Yuanyuan contributed to this story.