China Property Curbs Start to Bite as Prices Ease in Some Cities

(Bloomberg) -- China’s overheated property market is showing tentative signs of cooling, with home prices in some of the hottest cities falling this month as authorities stepped up curbs to avert a potentially ruinous housing bubble. 

New-home prices in Beijing fell 3.7 percent in the first weeks of October from September and dropped 2.5 percent in Shanghai, the National Bureau of Statistics said Friday, adding the market “apparently cooled” in response to targeted measures rolled out in some cities. Still, average new-home prices in 70 cities tracked surged the most in more than seven years in September, climbing 1.8 percent from August, according to Bloomberg calculations based on the data.

Local governments in at least 21 cities have introduced property curbs, such as requiring larger down-payments and limiting purchases of multiple dwellings, in a bid to arrest runaway prices. Even with some main markets cooling though, policy makers have a long way to go before they can claim victory in averting a bubble without killing one of the economy’s main pillars of growth.

“The curbs will show their effect in the initial two-to-three months, but in the longer term idle capital will still likely flow to property in the largest hubs as ‘safe-heaven’ assets,” said Xia Dan, a Shanghai-based analyst at Bank of Communications Co. The impact of the curbs will gradually abate as “liquidity is so abundant in a credit binge,” she said.

September Gains

It was the first time the statistics bureau had released figures for the current month, and they showed a marked turnaround from September, suggesting moves to clamp down on the property frenzy may have had the unintended effect of stoking an already red-hot market by prompting a rush of buying before further restrictions were imposed.

Prices in Beijing jumped a record 4.9 percent in September, Friday’s data showed. The local government Sept. 30 increased down payments for first-time buyers to 35 percent, the highest among the nation’s biggest cities. In Shanghai, prices rose 3.2 percent in September.

Across the country, new-home prices, excluding government-subsidized housing, gained last month in 63 of the 70 cities tracked, down from 64 in August. Prices dropped in six cities, compared with four a month earlier, and were unchanged in one.

Lending Rates

“These curbs only aim to rein in the home-buying panic and to stem the bubble, instead of being an all-round shackling on the property market,” Wang Tao, chief China economist at UBS Group AG in Hong Kong, said before the data was released. “The possibility of a home-price plunge is low.”

The curbs introduced so far are likely to have only a mild impact, she said.

“The most powerful property control is credit tightening, which we haven’t seen,” Wang said. “The purchase restrictions currently imposed can still be bypassed.”

China has kept its benchmark lending rate unchanged since October last year after cutting rates rates six times in 11 months, sending the benchmark mortgage lending rate to a historical low of 4.9 percent. Medium- and long-term bank loans to households, mostly residential mortgage loans, surged a record 571.3 billion yuan ($85 billion) in September, according to data from the People’s Bank of China.

Economic Growth

The pace of home sales is also rising sharply. The value of new homes sold rose 61 percent in September from a year earlier, almost double the previous month’s gain, according to Bloomberg calculations based on data released Wednesday.

A buoyant property industry helped the world’s second-biggest economy grow 6.7 percent in the third quarter from a year earlier, bang in the middle of the government’s 2016 goal of 6.5 percent to 7 percent growth.

An Oct. 1 report by SouFun Holdings Ltd., the owner of China’s biggest property website, showed prices in September gained in 81 of 100 cities tracked, up from 68 in August. Average new-home prices climbed 2.8 percent, accelerating from a 2.2 percent gain the previous month, the private data provider said.

The combination of higher prices and tougher curbs is sending more mainland buyers to consider purchasing property in Hong Kong, where prices are becoming “relatively more affordable,” according to Bank of America Merrill Lynch.

To contact Bloomberg News staff for this story: Emma Dong in Shanghai at edong10@bloomberg.net. To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Peter Vercoe

With assistance from Emma Dong