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China housing market seen to slow on drop in sales forecast

Beijing

CHINA'S housing market is expected to slow this year with sales forecast to drop, as Beijing steps up efforts to scrutinise banks and provincial governments keep a lid on lending and prices, a Reuters poll showed.

A resilient property market has provided some cushion for the world's second-largest economy as policymakers try to revive the ailing manufacturing sector and restore flagging consumer confidence amid an escalating trade war with the United States.

But rapidly-growing household debt and ever-rising home prices have deepened fears about a sudden market correction and concerns over housing affordability.

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Property prices rose for the 51st straight month in July despite a series of government measures to crack down on speculative buying since early 2016.

In an unusually strong message that the government had turned more hawkish on its housing policy as it manoeuvres to pump more credit into other areas of the economy, top Chinese leaders said in July that they would not resort to using the housing market as an economic stimulus.

Average residential property prices are estimated to rise 6 per cent in 2019 from a year earlier, according to the poll of 15 property analysts and economists surveyed from Aug 19-23.

The forecast was slightly higher than the 5 per cent projected in the last poll conducted in March, but is significantly slower than the 9.7 per cent gain seen in 2018 and in July in year-on-year terms.

"Housing measures in some cities will be tightened to avoid liquidity to divert into investments in properties. This will continue into the first half in 2020," said Iris Pang, Hong Kong- based Greater China economist at ING Wholesale Banking.

"Unless and until the trade war stops escalating then PBOC (China's central bank) won't need to pump liquidity into the financial system, and therefore there will be less worry that money will fuel property prices."

Price growth is projected to further slow to 3 per cent in the first half of 2020, the poll showed.

Lan Shen, an economist with Standard Chartered Bank in Beijing, also noted that Chinese developers may opt to cut prices as they face liquidity pressure and slowing sales.

The central bank said on Sunday that China will set lower limits on mortgage rates, in an apparent bid to curb housing risks following its reform to switch to a market-based reference rate.

But few analysts believe that prices will fall sharply. A lack of investment options, strong underlying demand for housing, an implicit state guarantee to prevent price falls and the relaxation of home purchase restrictions in some cities will all likely support prices, although sales are still expected to contract by 2 per cent in 2019.

"In regional markets where there have been signs of overheating since last year, there is a large downside risk," said Yuan Chengjian, an analyst with Beijing-based property consultancy Zhugezhaofang.

"But the probability of a sharp downturn - which means transaction volume falls more than 20 per cent - is not high. There is no such risk on the national market as a whole."

The property sector held up as one of the few bright spots in the slowing economy, although easing momentum in some markets took immediate pressure off regulators to unleash major new curbs to deter speculation.

Real estate investment - which usually lags sales trends by a few months - will likely remain elevated as land sales hit a record in the first half this year and construction activities picked up. REUTERS