China is unlikely to announce more property-specific measures as the central government shifts its policy focus to inflation control, said Citigroup Inc in a report.
Analysts said policy headwinds should ease slightly in the next half year since the government may need to consider the effect on growing inflation if liquidity flows out of real estate. Citigroup forecasts that over one trillion yuan is expected to go into other areas once the government screens out property investment and speculation demand.
“With the government shifting its policy focus to inflation control, we expect policy risks for the property market to stabilise,” the analysts wrote. “The property market for sure is not immune to interest rate or reserve-ratio-requirement hikes, but more property-specific measures are unlikely.” Inflation rose to a two-year high of 4.4 percent last month from 2009, while growth in home prices climbed 8.6 percent from the previous year in October, the slowest rate in 10 months.
Citigroup said rising housing prices are defying curbs implemented by the government as they are not targeted at the “structural problems”, which is causing the overheating. Among these problems include excessive liquidity, insufficient housing and a large wealth gap among consumers, the analysts said.
They also said that major cities like Beijing, Hangzhou, Shanghai and Shenzhen have been seriously affected by the government measures due to huge rallies in prices, because local governments follow the tightening policies of the central government and developer’s reluctance to reduce prices.
The report also found that sales volumes fell in major cities though home prices were still high. “Property is still treated as the best anti-inflation product in the market,” analysts said. Meanwhile, markets in smaller second-tier cities like Qingdao, Tianjin and Chengdu are still strong.
Property developers are willing to reduce prices by 10 percent from their previous guidance and are speeding up project launches to make up for declines in larger cities, said the report, adding that land prices in top-tier cities were still intact, while smaller cities recorded 20 percent to 30 percent declines.