China’s property market loosening bears fruit

Chinese efforts to encourage homebuyers appear to be gaining traction, with the nationwide drop in property prices slowing in March, according to data released over the weekend.

Average new home prices fell on an annual basis for a seventh consecutive month in March, but the rate of decline slowed from February, as a number of cities introduced measures to stir demand. Shanghai prices were flat while prices in Beijing and Shenzhen rose, according to the National Bureau of Statistics.

Real estate supports about 40 industries, from cement and construction to furniture and other consumer goods. It accounts for about 15 per cent of Chinese economic activity.

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Tom Orlik, chief Asia economist for Bloomberg Intelligence, said loosening measures adopted over the past year were starting to feed through. First tier cities enjoy natural demand, but smaller cities, which face a population outflow and large inventories of unsold apartments, will continue to struggle.

"If this is a turning point, it's not a turning point back into a property boom, it's a turning point away from a property collapse," he said.

New home prices fell in 49 of the 70 cities tracked by the statistics bureau, compared with 66 cities last month. Average prices fell by 6.1 per cent in March compared with a year ago, according to FT calculations based on official data, but only by 0.2 per cent compared with the previous month. February sales prices dropped 0.4 per cent from the month before.

A normal uptick in buying during the spring played a role, but property agents also reported they were busier than usual.

"The rate of sales has been higher in the past month than it has for the past two or three years. Some apartments that have been on the market for over a year have suddenly sold," said Wan Jie, a real estate agent in Beijing.

Late last month, authorities reduced minimum down payments for buyers of second homes and also cut to two years the length of time a seller had to have owned the home in order to avoid paying a business tax.

The moves come as Chinese authorities become increasingly concerned at the rate at which the country's broader economic growth is slowing.

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The gradual relaxing of restrictions winds back constraints put in place by former premier Wen Jiabao, whose curbs on bank lending and property purchases were designed to stop a politically unpopular spike in high-end housing prices.

Those policies helped feed the growth of China's shadow banking sector, as desperate property developers turned to unregulated high-interest loans, and marked the incursion of state-owned developers into a sector that had previously been dominated by private entrepreneurs.