Home prices in Beijing to remain steady, agents say

HONG KONG: Beijing home prices are expected to maintain a steady course during the remainder of the year, supported by the city mayor's unexpected pledge not to use administrative measures to intervene in the market.

Speaking during the Beijing Municipal People's Congress at the end of last month, Mayor Guo Jinlong said the government would not introduce administrative measures to push down home prices, leaving the market to determine price levels instead.

The pledge was the first of its kind by a mainland city mayor and reflected the dilemma facing local and city governments when it came to the issue of curbing demand for property, agents said.

"They are in a dilemma. On the one hand, strong land sales will give a boost to the city government's revenue. But on the other hand, high land prices will push up home prices, possibly creating an asset bubble that they do not want to see," Li Wenjie, head of Centaline Property Agency's Beijing branch, said.

Land sale revenues for China's local governments rose more than 60% last year as the country's property market surged.

Figures released on Feb 2 by the Ministry of Land Resource showed that local governments generated 1.59 trillion yuan (RM795 billion) from the sale of 209,000ha of land in 2009.

Sales to real estate developers were up 36.7% to 103,000ha and land sale revenues for property development hit 1.34 trillion yuan, accounting for 84% of total revenues.

City governments were the major beneficiaries, giving them an incentive to sell land to commercial housing developers rather than rein back home prices, Bao Zonghua, former chief of the Ministry of Housing and Urban-Rural Development Policy Research Centre, said.

Centaline's Li said the strategy of local governments such as Beijing's would now likely focus on increasing land sale releases to ease the rising trend in land prices.

While ruling out administrative measures to curb price rises, Guo said the city government would crack down on developers who delayed the launch of projects and left land idle in order to try and drive up prices. It would also help low-income earners.

To provide more accommodation for the needy, he said, the municipal government would build or purchase 134,000 homes for rent or sale to those on low incomes. It also planned to invest 100 billion yuan, or almost 10% of Beijing's GDP in 2009, in land development to stabilise the real estate market.

In the absence of any administrative measures such as increases in transaction taxes, demand for mid-market housing would see prices increase moderately, Li forecast. At the upper end of the market, prices were not likely to rise much due to a decline in demand from investors as a result of tighter credit conditions applied by banks. But they would also not see a big correction as supply was limited, Li said.

Beijing sales volumes fell more than 50% in January versus the previous month, according to the latest research report by Centaline. But prices of second-hand homes in the city rose 1.24% over the same period.

Data shows that for the whole of 2009 there were 280,000 units transacted in the secondary market and 150,000 new units sold, for a record total of 430,000 units versus the previous record of 200,000 units sold in 2007.

"But even though latest sales volumes are running at 50% below that of 2009, the market will not be too bad," Li said.

Although the central government moved to tighten lending last month by requiring banks to set aside an additional 0.5% of total deposits as reserves, analysts said monetary conditions remained relatively loose with China targeting a hefty 7.5 trillion yuan in new credit over the full year, representing a 20% increase.

But they said the authorities wanted banks to better balance loans and desist from the kind of surge seen at the start of this year. – South China Morning Post
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