Home prices in major cities likely to fall 10%, says S&P

HONG KONG: Home prices in first-tier cities on the mainland are likely to fall by 10% over the next six to 12 months as Beijing moves to curb speculation and avoid a bubble, according to rating agency Standard & Poor's.

''The government's policy attempts to prevent sharp price rises and speculative activities, which has muted demand, and has coincided with an abundance in supply of new property for sale. As a result, we believe there is room for average prices to adjust downwards in the near term,'' said S&P credit analyst Bei Fu.

Fu's comment comes on the heels of the central government's move on Sept 29 to suspend bank loans for third-home purchases effective from Oct 1 and the announcement that plans were afoot to extend property taxes throughout the country. Also, all first-home buyers must now make a down payment of at least 30%.

''But if the economy slows down significantly — we currently expect 10% economic growth for 2010 — and interest rates rise sharply, we estimate prices may even tumble 20%,'' she said.

Fu said many major developers had locked in most of their revenue for this year through pre-sales of incomplete units and that sales have been largely satisfactory.China Overseas Land and Investment on Monday said it had generated HK$8.1 billion (RM3.23 billion) from property sales last month, up 78.6% from a year earlier. The developer has pulled HK$46.1 billion in sales revenue for the first nine months of the year, 19.8% higher than the same period last year.

Xia Haijun, chief executive and vice-chairman of mainland developer Evergrande Real Estate Group, also sounded upbeat. The company would not repeat its May strategy of a 15% price cut in all of its projects, he said. ''We have achieved a surge in both prices and volumes in the May-September period after the nationwide price adjustment.''

Despite the new government measures, he is confident the group will achieve its annual contracted sales target of 40 billion yuan (RM18.56 billion). In September, the company achieved contracted sales of 5 billion yuan, which represented the highest monthly record of the year and a 15% growth from August.

The company's contracted sales amounted to 35.6 billion yuan for the first nine months. Xia said prices in big cities, where home values have remained bullish, could fall when the central government imposes the property tax in select cities. Sales volume during the National Day ''golden week'' holiday was 40% to 50% below the company’s expectations, he said, without elaborating.

But Xia believes the correction, when it comes, will not occur nationwide. Properties in second- and third-tier cities are priced at about 6,000 yuan per square metre, still seen as affordable by homebuyers.

Moreover, real demand remained strong, he said, discounting chances of any major correction in those cities.

Speaking at a forum on Monday, Nie Meisheng, president of the semi-official China Real Estate Chamber of Commerce, said Beijing was expected to start levying a property tax on a trial basis within months.

He Ken, deputy head of the economic committee of the National People's Congress, told the same forum that the tax rate would be higher on bigger homes. — South China Morning Post
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