Cooling China property market 'raising debt risk'

[BEIJING] China's weakening property market poses an increasing danger to local governments, threatening to strain their finances and intensify an economic slowdown. Land sales in 20 major cities fell 5 per cent in March from a year earlier, the biggest drop in at least a year, according to China Real Estate Information Corp data compiled by Bloomberg. The value of land sales in third-tier cities declined 27 per cent last month, according to SouFun Holdings Ltd, the nation's biggest real-estate website owner.

Failure to find other revenue sources increases the risk of defaults and financial turmoil that curb economic expansion already projected this year at the slowest pace since 1990. Some cities plan to reverse controls implemented to make home prices more affordable or give residency benefits to out-of-town buyers, a state-run newspaper reported this week.

"As the housing market is cooling off, we expect land-sale revenue will decline and this will add pressure on the funding capacity for local governments," said Zhu Haibin, chief China economist with JPMorgan Chase & Co in Hong Kong. Land sales will drop more in areas where oversupply in property is more severe, said Mr Zhu, who previously worked at the Bank for International Settlements.