Crash threatens to derail market

BEIJING: The deadly high-speed train accident in eastern China last Saturday could have a ripple effect through property markets in cities along the new railway lines if Beijing responds by scaling down or delaying investment in the network, according to analysts.

Beijing planned to spend 2.8 trillion yuan (RM1.28 trillion) on the network over five years, ending 2015.

"If the central government decides to temporarily stop the high-speed train development until the investigation into the accident finishes, that will be a blow to the market," said Alan Chiang Sheung-lai of property consultancy DTZ. "But so far, it is too early to predict if that will happen."

The collision occurred near Wenzhou, Zhejiang province, when a train reportedly stalled after being struck by lightning and was rammed by another train. State media said a power failure caused by the lightning strike knocked out an electronic safety system that should have alerted the second train.

Credit Suisse Group echoed the concerns, saying land sales in "several" cities along the Beijing-Shanghai line surged in 2009 and last year.

"Coincidentally, last week, Premier Wen [Jiabao] demanded investigations into the illegal confiscation of land by local governments in the name of railway and highway development. Saturday's accident could trigger a movement that could affect developers' existing land banks," it said, maintaining an "underweight" rating on the mainland's property sector.

However, Lee Wee Liat, regional head of property research at Samsung (Asia), said it was unlikely that infrastructure investment would slow down as a result of the accident.

"The improvement in connectivity, especially into the inland cities, is going to be structural and irreversible. This will bring about accelerated economic growth and net inward population migration," he said, adding that these factors would continue to support faster price growth inland compared to coastal cities.

"This is pretty similar to the episode of the Sichuan earthquake in 2008. Post-quake, there was a lot of concern that property prices would collapse in Chengdu as people moved out of the area. Yet property prices in Chengdu are now almost double the levels of 2008."

Irrespective of the accident's impact, analysts said the mainland market had been slowing, with developers cutting prices for their launches.

"The city governments will not issue pre-sale consents to developers if their asking prices are above the market level," Chiang said.

"This is happening in many cities, including Shenzhen," he said. "Prices have been softening and the average prices will see an overall decline by September or October."

During the State Council's July 12 meeting, Wen urged smaller cities with sharp property price rises to step up efforts to cool the market. That included restricting residential owners from buying more than two flats. — SCMP