China’s property prices rose at the slowest pace in a year in November after the government raised the reserve-ratio requirement for banks twice and expanded measures to limit the risk of asset bubbles.
Home prices in 70 cities climbed 7.7 percent from a year earlier, the statistics bureau said on its website today. That’s slower than the 8.6 percent increase in October and the 8 percent median estimate in a Bloomberg survey of seven economists. Sales volume increased 14.5 percent and transaction values surged 18.6 percent from a year earlier, the report said.
"Beijing will be pleased that house price inflation is continuing to ease,” said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. “But the pick-up in volumes suggest that conditions are still buoyant in the property sector and that more policy measures are required.”
China has tightened measures on home purchases this year, suspending mortgages for third-home purchases and pledging to speed up trials of property taxes nationwide. It also raised interest rates in October for the first time in three years on concerns of inflation and increases in asset prices.
"It will take more time for the effect to be more obvious,” said Sun Mingchun, chief economist at Daiwa Securities Capital Markets in Hong Kong, who expects prices to fall within a 10 percent range next year. “Clearly there are further tightening policies in the pipeline.”
'Quite Modest'
Home price growth has slowed for a seventh month since the peak in April, when property prices climbed 12.8 percent, a record based on data that goes back to 2005. Prices rose 0.3 percent from October, following a 0.2 percent gain last month.
The month-on-month data “is more relevant and appears quite modest,” said Nicole Wong, a Hong Kong-based analyst at CLSA Asia Pacific Markets. The 0.3 percent gain implies a 3.6 percent annual increase, which is lower than inflation, she said. China’s consumer prices climbed 4.4 percent in October.
Sales volume rose 9 percent in November from October, while transaction values gained 4.1 percent, the government said.
An index tracking 34 Shanghai-listed property companies has tumbled 27 percent this year, compared with a 14 percent decline in the benchmark Shanghai Composite Index, on concern that cooling measures will hurt profits and the economy.
China’s property investment rose 36.7 percent to 462.8 billion yuan ($69 billion) in November from a year earlier, and increased 36.5 percent for the first 11 months of the year to 4.27 trillion yuan.
Overpriced
About 35 Chinese large and medium-sized cities are overpriced by an average of 29.5 percent, Chinese Academy of Social Sciences, the country’s top think tank, said in a report released Dec. 8. Seven cities, including the eastern city of Hangzhou near Shanghai, are facing housing bubbles where homes are 50 percent above their assessed values, the report said.
China should raise interest rates further and impose a property tax to curb the risk of asset bubbles and a “disorderly fall” in home prices, according to a study by the International Monetary Fund in a working paper this month. Existing measures “at best only treat the symptoms of high residential real-estate inflation and not the underlying structural causes,” it said.
Today’s numbers came after private data indicating strength in sales in November. SouFun Holdings Ltd., the country’s biggest real-estate website owner, said home prices in 100 cities it monitors advanced 0.8 percent in November from October, gaining for a second month even as the central bank raised rates.
Vanke, Agile
China Vanke Co., China’s biggest listed developer, said last week its annual revenue reached 100.1 billion yuan as of Dec. 1, reaching a target it had set for 2014, after its November sales more than doubled from the same period in 2009. Agile Property Holdings Ltd., a Guangdong-based developer, said it met the year’s sales target by November after a 64 percent rise last month from the same time 2009.
"The total sales targets were met, but these developers may have been relying on growth of smaller cities rather than the large cities,” said Fu Qi, an analyst at China Real Estate Information Corp., which provides property data and consulting services, before today’s release. “The government is trying to control the home prices, but they certainly don’t want to see the death of developers.”
Home prices have risen for 18 straight months even as gains slowed. That helped to draw more investors to real estate compared with other investments, said Liu Li-Gang, a Hong Kong- based economist at Australia and New Zealand Banking Group Ltd.
'Still Attractive'
"The return for property purchases is still attractive, compared with bank deposits rates and yields of long-term government bonds,” Liu said.
China’s inflation accelerated to the fastest pace in two years in October and the 4.4 percent increase in consumer prices exceeds the one-year bank deposit rate of 2.5 percent and the yield on China’s benchmark 10-year bonds, which reached 4.02 percent on Nov. 29, the highest level since September 2008.
China’s property market was given a stable outlook in a Nov. 30 report by Moody’s Investors Service, which expects developers to withstand a “moderate downward correction” in prices in the next year following government curbs.
China ordered banks to set aside larger reserves twice last month. The reserve ratio requirement will climb to 18 percent for the nation’s biggest banks, according to Bloomberg data based on central bank statements.
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