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China's 2019 property investments solid, but first sales drop in 5 years dents outlook

Analysts say a continued downturn in sales will constrain price growth in coming months

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China's new home prices grew at their weakest pace in 17 months in December, with broader curbs continuing to cool the market in a further blow to the sputtering economy.

Beijing

CHINA'S property investment hit a two-year low in December, even as it grew at a solid pace in 2019, adding to recent signs of a slackening in the sector and suggesting that Beijing might need to offer more stimulus to stabilise a cooling economy.

Real estate investment, which mainly focuses on the residential sector but includes commercial and office space, increased 9.9 per cent in 2019 from the year-earlier period, down from 10.2 per cent in the first 11 months but still outpaced a 9.5 per cent gain in 2018.

In December alone, year-on-year growth slowed to 7.3 per cent from 8.4 per cent in November, the weakest pace since December 2017, according to Reuters calculations based on data released by National Bureau of Statistics (NBS) on Friday.

The reading was in line with other activity data out on Friday, which showed the world's second-largest economy grew 6.1 per cent in 2019, the slowest in 29 years. This was likely helped by its looser monetary policy as it gave developers relatively easier access to credit.

New bank lending in China hit a record of 16.81 trillion yuan (S$3.30 trillion) in 2019, while China's central bank has announced eight cuts in banks' reserve requirement ratio (RRR) since early 2018, freeing up more funds and driving down lending costs.

"There was some slowdown in December but we don't need to be too concerned with property because things are improving on the financing side," said Yang Yewei, a Beijing-based analyst with Southwest Securities, which noted an increase in mortgages in December.

Funds raised by China's property developers grew 7.6 per cent in 2019 year on year, NBS data showed, faster than the 7 per cent pace in the first 11 months.

Chinese property developers kicked off the new year with a strong pipeline of bond issuance, in particular for long-tenor notes, taking advantage of easier regulatory approvals and robust market demand.

But analysts say investment in actual construction has slowed notably as developers exercised caution, although they appear still eager to bid for land.

Measured by floor area, new construction starts rose 7.4 per cent in December from a year earlier, recovering from a 2.9 per cent decline in November, when it hit the worst level seen in more than two years.

Land sales by floor area in 300 major cities tracked by China Index Academy fell 1 per cent on year in 2019, while transaction value surged 19 per cent, providing a much needed boost to local government purse strings.

The government is keen to defuse housing bubbles after years of supercharged price gains.

However, since the real estate sector remains a key pillar of the economy, any more weakness could influence the pace and scope of fresh stimulus measures expected from Beijing this year.

Property sales by floor area, a major indicator of demand, fell 0.1 per cent in 2019 from a year earlier, marking the first full-year decline in five years since the last downturn in 2014, when it slumped 7.6 per cent, the NBS data showed on Friday.

Analysts say a continued downturn in sales on the back of government controls to curb speculation will constrain price growth in coming months, dampening developers' appetite for front-loading construction.

Data on Thursday showed China's new home prices grew at their weakest pace in 17 months in December, with broader curbs on the sector continuing to cool the market in a further blow to the sputtering economy.

Some analysts say the government could potentially dial back stimulus when economic growth stabilises in order to lower debt risks.

"It is likely that the government could take the chance of an economic warm-up to consolidate local government finance and continue the property market control, which might set an up-limit for GDP growth in this year," JP Morgan Asset Management Global Market Strategist Chaoping Zhu wrote in a note. REUTERS