Rising realty prices could spoil Chinas uncertain recovery

Written by Reuters | Beijing | Updated: Jan 18 2013, 06:42am hrs
Business is booming in Beijings real estate offices good news for property agents like Zhang Huanhuan, but a headache for Chinas policymakers as worries resurface about the sustainability of investment in the sector. Weve got off to a flying start in 2013 transactions are picking up, so are prices, said Zhang, a saleswoman at an outlet of Maitian Real Estate Agency in the capital.

Recent sales included six high-end apartments at a condominium in Beijings Dongzhimen area, a neighbourhood favoured by the citys expatriates, she said.

Government data on Friday is likely to show Chinas annual economic growth rebounded to 7.8% in the fourth-quarter of 2012 from 7.4% in the third, snapping seven straight quarters of weaker expansion.

Chinese leaders may by reassured that the economy has finally turned the corner even though the recovery is likely to be tepid but they face a delicate policy balance amid worrying signs of a renewed property frenzy. The home buying spree has not been confined to Beijing.

New home prices in 70 major Chinese cities rose 0.3% in November from October the fourth month in the last five to show a rise a modest increase but the most, nonetheless, in 19 months, official data showed.

The first phase of 44 suites of our project launched last week has almost sold out, with only 6 suites left, said a salesman surnamed Qua, marketing a development by Wharf Holdings in Hang, capital of eastern province of Zhejiang. We will launch the second phase of over 300 suites and so far about 2,000 prospective buyers had registered buying interest for our project.

The new leaders of the ruling Communist Party have promised to keep pro-growth policies in place in 2013, amid expectations they will speed up migration to Chinas burgeoning cities by overhauling the rigid household registration, or humour, system, which could unleash fresh housing demand.

While reaffirming existing property cooling policies to fend off speculation, they may be tolerating a modest pick-up in the property sector to aid an economic recovery still heavily reliant on investment, analysts say.

Without stability, Xi Jin ping and Lid Keating, who are due to take over as President and Premier, respectively, in March, have no chance of delivering a slew of reforms they say are needed now to tackle the financial, industrial and income imbalances that threaten Chinas future development.

Policymakers have reiterated that they dont want to relax property measures, but it will be hard for them to further tighten in an overall economic climate where the recovery is still not on a strong footing, said Louis Kumis, chief China economist at Royal Bank of Scotland in Hong Kong.

They continue to express their desire to rein in housing prices, even though that turns out to be hard to do in the face of the fundamental drivers like income growth and urbanisation.

The property sector is a pillar of the economy, and investment in the sector accounted for 14.4% of GDP in the first nine months of 2012.

Analysts at Capital Economics estimate that investment in residential property alone accounted for 8.8% of GDP in 2012, up from 8.5% in 2011 and 4.3% in 2002.

That is well above the peak for real estate investment in the US in the middle of the last decade and is also above the peak real estate investment rates recorded in South Korea and Japan during their periods of rapid growth.

Chinas home prices started to rebound in mid-2012, as the Peoples Bank of China began to ratchet up its policy easing as part of Beijings growth-supporting policies.

A 25% jump in housing prices in 2009 prompted the government to take a raft of measures, including lending curbs, higher mortgage rates and restrictions on the number of homes each family can buy, in a bid to deflate housing bubbles.