CHINA’S red-hot property market in major cities has shown signs of cooling after authorities stepped in with a spate of measures to contain sky-high prices, an official survey showed Friday, citing fresh data for the first half of October.

    Drastic price rises in 15 first- and second-tier cities have been “markedly contained” by policies to curb property price growth, according to the National Bureau of Statistics (NBS).

    Compared with September, the month-on-month price index for new residential property in those cities retreated this month, even though most of the cities still reported rises.

    In Beijing and Shanghai, home prices went up 1.2 percent and 0.7 percent, respectively, for the first half of this month, moderating from the 4.9-percent and 3.2-percent gains seen in September.

    Sales also slumped. Compared with the latter half of September, sales volume in four cities dropped between 60 to 80 percent in the first half of this month.

    The NBS attributed the “positive changes” to local governments’ property curb policies. Over the weeklong National Day holiday, dozens of Chinese cities announced measures, including purchase limits and tightened mortgage restrictions, to prevent prices from rising out of control.

    However even with some main markets cooling though, policymakers have a long way to go before they can claim victory in averting a bubble without killing one of the economy’s main pillars of growth.

    “The curbs will show their effect in the initial two-to-three months, but in the longer term idle capital will still likely flow to property in the largest hubs as ‘safe-haven’ assets,” said Xia Dan, a Shanghai-based analyst at Bank of Communications Co. The impact of the curbs will gradually abate as “liquidity is so abundant in a credit binge,” she said.

    September gains

    It was the first time the statistics bureau had released figures for the current month, and they showed a marked turnaround from September, suggesting moves to clamp down on the property frenzy may have had the unintended effect of stoking an already red-hot market by prompting a rush of buying before further restrictions were imposed.

    Prices in Beijing jumped a record 4.9 percent in September, Friday’s data showed. The local government Sept. 30 increased down payments for first-time buyers to 35 percent, the highest among the nation’s biggest cities. In Shanghai, prices rose 3.2 percent in September.

    Across the country, new-home prices, excluding government-subsidized housing, gained last month in 63 of the 70 cities tracked, down from 64 in August. Prices dropped in six cities, compared with four a month earlier, and were unchanged in one.

    Lending rates

    “These curbs only aim to rein in the home-buying panic and to stem the bubble, instead of being an all-round shackling on the property market,” Wang Tao, chief China economist at UBS Group AG in Hong Kong, said before the data was released. “The possibility of a home-price plunge is low.”

    The curbs introduced so far are likely to have only a mild impact, she said.

    “The most powerful property control is credit tightening, which we haven’t seen,” Wang said. “The purchase restrictions currently imposed can still be bypassed.”

    China has kept its benchmark lending rate unchanged since October last year after cutting rates six times in 11 months, sending the benchmark mortgage lending rate to a historical low of 4.9 percent. Medium- and long-term bank loans to households, mostly residential mortgage loans, surged a record 571.3 billion yuan (US$85 billion) in September, according to data from the People’s Bank of China.

    A fine line to walk

    The latest round of property restrictions came after two years of progressive policy easing, starting with the relaxation of purchase restrictions in 2014. The momentum was further fueled by the government’s pro-growth policies, including interest rate cuts and lower deposit requirements.

    The sector’s recovery, however, has been uneven from city to city, with economically strong areas reporting drastic price rises, and less-developed areas still reporting huge inventories of unsold houses.

    While the property recovery has proved to be a significant growth driver so far, policymakers have to walk a fine line to guide market expectations, since either an asset bubble or a sharp correction could increase risks to the broader economy.

    Official data Wednesday showed China’s economy grew 6.7 percent in the third quarter, holding steady from the second quarter and putting the government on track to hit the full-year target of between 6.5 and 7 percent.

    In the short-term, the biggest unknown remains the effect the government’s efforts to rein in home prices will have on growth, as the property sector affects industries ranging from construction and cement to furniture.

    Overall property market sentiment and demand were strong before recent tightening measures took effect, and some of this demand will likely be released, Wang noted, adding sales growth is expected to decelerate but not contract in the next couple of months.

    Given policymakers’ recent concerns about a property bubble and rising leverage, along with the fact that this year’s GDP target looks set to be met without much need for additional quasi-fiscal support, no notable credit acceleration or interest rate cuts are expected by year end, the economist added.

    The combination of higher prices and tougher curbs is sending more mainland buyers to consider purchasing property in Hong Kong, where prices are becoming “relatively more affordable,” according to Bank of America Merrill Lynch.

    (SD-Xinhua)