China Property Curbs in Focus Ahead of Parliament Meet
China's property market is rifewith speculation - both about rising house prices and about whatthe new government may do to curb them once it takes office nextweek.
Asset prices have whipsawed as investors first bet thatgovernment-mandated infrastructure spending would boost realestate prices, only to then fret about new measures to cool amarket that has seen double-digit annual price rises in citieslike Beijing and Shenzhen.
Markets appear more nervous than the government about thepace of price rises revealed by official January housing dataissued last week, and economists at influentialstate-run think-tanks reckon investors are right to be worriedthat the new government is preparing to widen a pilot propertytax as part of a broader reform of land and fiscal policies.
"China needs to establish a long-term policy system. Rightnow restrictions only target property transactions," SunXuegong, an economist with a think-tank under China's powerfulNational Development and Reform Commission, told Reuters.
He said China urgently needs a blueprint to stabilize thereal estate market, and Xi Jinping and Li Keqiang - set to takeover as president and premier, respectively, at China's annualmeeting of parliament from March 5 - would not shy away fromdelivering one.
(Read More: Why China Home Curbs Are Not Bad News for Stocks)
Wang Jun, an economist with the China Center forInternational Economic Exchanges (CCIEE) think-tank, believesthe only thing holding back new property tightening measures hasbeen the political transition. "Any breakthrough is impossiblein the current government's last month in office," he said.
He said repeated assurances to curb home prices duringoutgoing Premier Wen Jiabao's decade in charge had clearlyfailed and the new leadership would be determined not to lethistory repeat itself.
The raft of tightening options includes expanding theproperty tax to all of China's biggest cities to raisingdownpayments and mortgage rates on homes - all of which wouldlikely dent the number of deals and put fresh strain ondevelopers who need sales turnover to service their debt.
Domestic media have circulated what they say is a list ofcities that may follow Shanghai and Chongqing on the propertytax pilot the government started in 2011. Beijing, Shenzhen,Hangzhou, Wuhan and Xiangtan are all included, though no localgovernment or ministry official has confirmed the candidates.
(Read More: Bond Frenzy Stokes Bubble Fears in China's Real Estate)
Analysts say it is likely that China's big cities, currentlyexperiencing double-digit annual property price rises, are mostlikely to bear the brunt of any new tightening moves.
"We'll need to look for policy signal clues from the nextleaders during the (parliament) meeting," CCIEE's Wang said.
So far, signals have been conflicting.
The last meeting of the State Council - China's cabinet -chaired by Wen last week merely said a campaign to cool propertyprices was on track, and restated its broad terms.
But bearish investors note that those terms includerequiring provincial governors and city mayors to announcedetailed plans to implement restrictions that so far have beenapplied inconsistently.
Beijing's municipal government last year ordered its housingbureau to increase qualification checks of home buyers,including the number of homes owned by the families and how longthey have paid social insurance in the city. It also doubledefforts to punish officials assisting unqualified purchasers.
A new cabinet, to be formed by Li when Wen formally handsover the reins at the National People's Congress, could feel itshould act quickly to calm a market that has seen real estateprices soar 10-fold in major cities during the last decade.
Markets Unnerved
Such measures might include higher downpayments and mortgagerates to curb speculation. That's what has unnerved markets,with the Shanghai Stock Exchange property share sub-index
down around 7 percent since hitting a 34-month highearlier this month. The CSI 300 index of top Shanghaiand Shenzhen listings has followed a similar trajectory.
Investors fear home prices will overshoot expectations thisyear and invite tighter measures, such as raising downpaymentsto 70 percent of a home's value from 60 percent currently.Mortgage rates could increase to 1.3 times the benchmark ratefor second-time home buyers from 1.1 times - as tipped in themarket last week before the cabinet statement.
First-time home purchases are still encouraged in China,with 30 percent downpayment and a discount on mortgage loans.
A move by China's Ping An Bank this week to banits regional branches from approving mortgages was seen by manybankers and analysts as a sign that Beijing was set to tightencontrols on property to calm record prices.
(Read More: China Property Controls Seen in Ping An Bank Shift)
Leadership Change
"Given the political void until mid-March, the new policylooks to be more a goodwill political gesture by the outgoingadministration than something that will really bite," saidXianfang Ren, an economist with IHS Global Insight in Beijing.
According to Liu Jianwei, a senior statistician at China'sNational Bureau of Statistics (NBS), housing inflation thatpicked up in the last quarter will taper off with quick andeffective reinforcement of tightening measures issued over thepast three years.
China had 236 million square metres of unsold homes at theend of last year, about three times last year's monthly sales.That is a reason for Liu to be confident about checking housinginflation. But IHS' Ren reckons three months' supply is verytight and leaves a risk of immediate price rises, with newtightening measures to follow imminently.
She added that if China failed to mop up liquidity, adecisive driver of home prices, "the housing market could runoff the leash to the extent of careening the economy to theupside, yet unsustainable, track again."
China's home prices started to creep up again after thecentral bank cut interest rates in mid-2012 and injectedliquidity to boost the world's second-biggest economy. New homeprices rose in 53 of the 70 cities monitored by NBS in Januaryfrom December. On average, they rose 0.7 percent - making eightstraight months of upward movement.
In Reuters' weighted index, home prices were up 12.2 percentin Beijing and 10.8 percent in Guangzhou in January from a yearearlier, returning to double-digit rises.
A Reuters poll in December showed economists expect houseprices to rise 7 percent this year and 5 percent in 2014 onstrong demand and a reviving economy.
The conclusion is clear, according to Lan Shen, an economistwith Standard Chartered in Shanghai: "The government has notwrapped up its tightening policies yet."