China Shares Slump as Property Curbs Hit Developers
Chinese shares tumbled to their lowest close in six weeks, after Beijing hit property developers with harsher-than-expected tightening measures to contain housing costs.
China's CSI300 share index plunged on Monday to its steepest daily loss since November 2010, with the property and banking sectors diving in response to more tightening measures Beijing announced late last week to contain housing costs.
The CSI300 index of the top Shanghai and Shenzhen A-share listings closed down 4.6 percent at 2,545.7, its heaviest loss in a single day since Nov. 12, 2010. The Shanghai Composite Index tumbled 3.7 percent.
China's cabinet announced late on Friday an increase in down payments and loan rates for buyers of second homes in cities where prices are rising too quickly. The announcement came ahead of the start of China's annual parliamentary meetings.
A gauge of property developers listed in Shanghai dived 9.3 percent, its biggest daily loss since June 2008.
"Friday evening's announcement was very significant and beyond the expectation of many in the market," said Hong Hao, chief equity strategist at Bank of Communication International Securities.
"We are in a high risk zone now. I wouldn't advise clients to add risk in the near term, since property is a huge sector. This will have a ripple effect on other sectors in the economy," Hong added.
China's two largest developers by sales, Shenzhen-listed China Vanke and Shanghai-listed Poly Real Estate each dived by the maximum 10 percent limit. The Shanghai property sub-index was down 9.1 percent, poised for its worst daily loss since June 2008.
In Hong Kong, China Resources Land slumped 8 percent, reversing losses on the year. It is now down 1.7 percent in 2013, compared with a 0.3 percent loss on the Hang Seng Index and 2.7 percent slide on the China Enterprises Index.
China State Construction Engineering, the country's largest construction contractor, tumbled 9.1 percent in Shanghai. Anhui Conch Cement, China's largest cement producer, slumped 9.5 percent in Shanghai and 5.3 percent in Hong Kong.
(Read More: Hong Kong Unveils More Property-Cooling Measures)
The move to tighten on Friday evening also involved an extension of home purchase restrictions to cover all districts and all product types and stricter enforcement of a 20 percent capital gains tax on property sales.
Lee Wee-Liat, BNP Paribas' head of Asia property research, said in a note dated March 3 that he expects the announcement on the expansion of property taxes to more cities in April.
UBS downgraded their target prices by an average of 13 percent for 12 Hong Kong-listed Chinese developers they cover, expecting new measures to "freeze" the entire market and delay the originally planned sales schedules in the near term.
In the bond market, Chinese property bonds are down by 50 cents to a point lower in early deals with analyst watching if local governments will follow up with their own measures.
China's property market has been rife with speculation about rising house prices and what the country's new leadership may do to curb them in the lead up to this week's annual parliamentary meetings.
The annual Chinese People's Political Consultative Conference began on Sunday and the National People's Congress, where Xi Jinping is expected to be confirmed as president, starts in Beijing on Tuesday.