Warning after strong China property growth

HONG KONG: Beijing's super-loose monetary policy and unprecedented stimulus measures boosted investment in the mainland's real estate industry to a record 3.6 trillion yuan (RM1.77 trillion) last year.

This represented growth of 16.1% year-on-year, with sales soaring 42.1% to an unprecedented 930 million sq m, according to a report by the Housing and Urban-Rural Development released on March 8. Investment in property has grown from 280 billion yuan in 1995.

But analysts say the performance is unlikely to be repeated this year due to the government's tough measures to cool down excessive growth in property prices.

"The amount of property investment is at an historical high, thanks to the four-trillion yuan stimulus package providing ample liquidity to major sectors such as the real estate industry," said Liao Qun, a senior vice-president and chief economist at Citic Ka Wah Bank.

"We saw both property and land prices heating up last year."

However, Liao believes the trend is not sustainable this year. He forecast real estate investment to drop 10% due to the banks tightening lending for property and other austerity measures to stabilise prices.

Jiang Weixin, minister of Housing and Urban-Rural Construction, told the annual session of the National People's Congress on March 8 that the government would punish developers who delayed sales to wait for higher prices. The government would build 2.8 million housing units this year, ensuring that the country's low-income earners could afford accommodation, he said

For the past several months, Beijing has tightened rules governing mortgage downpayments and hoarding of land and finished flats by developers to put the brake on soaring property prices -- one of the biggest complaints from the public.

Liao said the government's austerity measures appeared to be working, with property sales tumbling by 50% in the first two months of the year. By the end of the year he predicted that the number of transactions in the residential market would fall by between 20% and 30%.

"As the sector is clouded by uncertainties, investment is likely to slow."

Alan Chiang Sheung-lai, the head of mainland residential property at property consultant DTZ, said prices peaked last year after home values in four major cities soared by between 40% and 95%.

Home prices in Shenzhen surged 95% last year to an average of 22,000 yuan per sq m; in Beijing they rose 88% to an average of 14,000 yuan per sq m; Shanghai jumped 43% to an average of 20,000 yuan per sq m; and in Guangzhou they rose 41% to 9,200 yuan per sq m, Chiang said.

However, he did not think home prices would fall significantly this year, as developers had built up strong cash flows from the sharp rise in sales last year.

"Property firms will not dump their flats at steep discounts in view of land replenishment becoming more expensive than before," he said. – South China Morning Post