Chinese developers tumble most in five weeks on property curbs

[HONG KONG] Chinese property shares took their biggest beating in five weeks after authorities in more than a dozen cities imposed restrictions to curb surging prices during a week-long holiday for the financial markets.

Poly Real Estate Group Co and Beijing Capital Development Co lost at least 3.9 per cent, dragging down a gauge of developers in Shanghai by 2.2 per cent at the midday break, the most since Sept 1.

Shanghai's housing commission announced over the weekend steps including increasing land supply and forbidding price increases in new home pre-sales without approval, as it joined other Chinese cities in a push to ensure the real estate market is stable.

Authorities in both tier 1 and tier 2 Chinese cities such as Nanjing, Shenzhen and Fuzhou have recently announced measures to contain house-price bubbles, including specific restrictions on mortgage and down-payment policies. Home prices started to take off last year after the governments eased curbs on property purchases.

"The plunge is an initial reaction to the property curbs," said Jingyi Pan, a Singapore-based strategist at IG Asia Pte Ltd. "Authorities are keen to tame surging prices, but we are not expecting a tumble as it will not be in their interest. Property share prices may eventually still see a climb, albeit a very slow one."

The latest curbs come after Deutsche Bank Group AG warned last month that China's housing market is in a bubble, while Goldman Sachs Group AG has said it sees growing risks across the real estate industry. New restrictions, such as higher deposits to limits on the number of homes people can buy, are proving ineffective given the easy access homebuyers have to leverage, according to Wee May Ling, an investment manager at Henderson Global Investors Ltd.

At stake is the government's ability to channel funds trapped by capital controls into investments that can boost the economy without creating asset bubbles.

Speculative buying of commodity futures earlier this year fuelled a boom that quickly unravelled, while a botched intervention to halt plummeting equities dented the credibility of policy makers and roiled global markets.

New home sales in Shanghai dropped 44.5 per cent in September compared to August, while prices rose 5.1 per cent in the same period, property consultant Shanghai Uwin Real Estate Information Services Co said this month.

China's medium and long-term new loans, mostly mortgages, totaled 529 billion yuan (S$108.8 billion) in August, while aggregate financing jumped to 1.47 trillion yuan, helping fuel a 39 per cent jump in property sales by value in the first eight months.

BLOOMBERG