Property prices in China have seen their first monthly fall in June since February last year – providing further evidence that the government’s cooling measures are working.
According to the National Bureau of Statistics, average prices in 70 cities declined 0.1 percent from May, bringing down the annual property inflation rate to 11.4 percent in June from 12.4 percent in the year to May and April’s reading of 12.8 percent.
Coming on the back of a controlled moderation in bank lending and slower import growth, these figures strengthened the conviction of several economists that no additional policy tightening is being planned.
However, with resilient exports that offset softer domestic investment, Beijing will not rush into easing its policy until clearer signals emerge from the construction and property sectors.
“Currently the Chinese property market’s at a crossroads. It’s a game of who blinks first,” said Dong Tao, chief China economist at Credit Suisse in Hong Kong.
The central government refuses to back down by lifting curbs implemented in April; buyers are sitting on the sidelines; and developers refuse to waver because they paid higher prices for land in 2009 and have positive long-term outlook, said Mr. Tao.
“One of these three key players needs to blink first and change their stance,” he said. “I see policy in a pause mode. Whether that lasts till the end of the year is not entirely clear to me. It all depends on who blinks first.”
Engineering a soft landing in the housing market is also vital. To prick a bubble that had developed in big cities like Shanghai and China, the government in April tightened rules on loans to developers, made it harder to buy multiple homes, ended mortgage discounts and raised down payments.
While annual property inflation has dropped for two consecutive months, underlying demand is still strong, and few buyers expect a sudden drop in prices, said Zhang Huadong, a property analyst at Xiangcai Securities in Shanghai.
“It’s very unlikely that the government will relax its policy of curbing demand,” said Mr. Zhang. “If – and I mean if – policy were relaxed, there would be another surge in property prices. It would be a disaster for the market.”
Banks in major cities like Shenzhen and Shanghai had recommenced making mortgages on third homes – a sign that the government was moderating its grip.
However, both Mr. Liu Kun, a property analyst at Great Wall Securities in Shenzhen, and Mr. Tao of Credit Suisse, said banks were only probing the determination of Beijing to impose its curbs firmly. ”The government is unlikely to announce measures to adjust its previous policies until the first half of next year,” said Mr. Liu.
Economists at Bank of America-Merrill Lynch also agreed. ”Banks always like to test the resolve of policymakers. We are glad to see more people are coming around to our view that there will be no policy reversal and policy easing very soon on the property front,” they said.