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Official report projects upward pressure for China housing prices
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21:57, April 24, 2008

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China's top economic planner has released a report emphasizing that upward pressure for the country's housing prices, which analysts said could be a signal for the relief of the government's concern over a sluggish property market, might spell further macro-control to prevent the sector overheating.

Despite a deceleration in price increases over the first quarter, a National Development and Reform Commission (NDRC) report said prices were likely to rebound after a period of adjustment in some cities while overall housing prices nationwide would continue to increase on a modest scale.

Uncertainties have been the focal topic of domestic academic and public discussions on the real estate industry over the past few weeks. At the high-profile Boao Forum for Asia earlier this month in Hainan Province, economists and executives recognized 2008 as "nothing but a quiet year", foreseeing a rational cooling at best or a painful reshuffle for the industry.

Hong Yuan Securities real estate analyst Yang Guohua agreed with the official assessment, calling the report "fairly objective and credible".

Citing his company's data, Yang said Beijing's real estate turnover, for instance, declined only 3 percent in March over the same period last year. Drops in the first two months, however, were as much as 40 percent to 50 percent.

Other metropolises, such as Shanghai, Shenzhen and Guangzhou, also witnessed a sharp brake from further sales drops, he said.

"The overall trend for a rebound in the real estate market is obvious. Housing price controls will still be a top priority on this year's government agenda."

The NDRC report noted housing prices may be driven back to the fast track as the upward price pressure would come from excess liquidity and the rising yuan, growing costs in land, steel and labor, a weak domestic stock market and the prospect of more buyers entering the market.

With the implementation of stricter regulations on land use, land prices for housing construction rose 21.7 percent in the first quarter, much higher than the 8.9 percent increase in the same period last year.

Construction costs were further increased by steel prices that have surged 10 percent this year, and were up 23 percent in March over the same time last year, China Iron and Steel Association statistics show.

Baosteel, the country's largest steel maker, made an early announcement in February that it would raise steel prices for the second quarter, in some cases by as much as 20 percent, after accepting Brazilian mining giant Vale's 65 percent iron ore price rise.

The producer price index (PPI) for industrial products and the factory-gate prices of raw materials, fuel and power, rising 8 percent and 11 percent, respectively, in March, also consolidated the expectations for rising production costs.

"The continuously increasing costs in housing construction and trading will further accelerate housing prices, especially those of China's small- and mid-sized cities," the report said.

Though the benchmark Shanghai Composite Index made its biggest gain of 9.29 percent or 304 points since Oct. 23, 2001, to 3,583.03 points on Thursday following an overnight announcement of a cut in share trading taxes, the index was still much lower than its peak of more than 6,000 points in October.

In addition, market confidence was yet to be consolidated as a majority of mutual fund owners were losing money. TX Investment Consulting statistics showed that in the first quarter 346 mutual funds from 58 fund management companies recorded 647.5 billion yuan (92.5 billion U.S. dollars) in losses, an eight-fold rise from the level in the fourth quarter last year.

Guosen Securities analyst Lin Songli proposed investors take a "sensible" attitude as the stamp tax cut policy was actually aimed at adjusting the psychology of investors.

"The stamp tax cut would not fundamentally change the operation of China's stock market but only render short-term fluctuations," he said.

The NDRC report released on Tuesday said capital fleeing the stock market, together with capital withdrawn from the production and distribution sectors amid concern over high inflation and a possible slowdown, would probably flow into the real estate market, pushing housing prices to a higher level.

Real estate has long been viewed as a crucial weather vane for the country's economic health as the sector was a major dynamo for investment and production.

Despite the snow disruption earlier this year and the declining trade surplus, the Chinese economy still grew 10.6 percent in the first quarter, a slight decline from 11.7 percent in the same period last year.

Fixed-assets investment, the pillar engine, surged 24.6 percent to 2.18 trillion yuan in the first quarter compared to the 23 percent rise of the last quarter and the 23.7 percent recorded a year ago.

Some experts believed that fixed-asset investment would stay high for the rest of the year despite the central bank's repeated emphasis on a tight monetary policy to tackle inflation.

"Once consumers ditched their wait-and-see strategy and re-entered the market with money in hand, housing prices are bound to rise," said director Xue Jianxiong with the Shanghai-based You Wei Real Estate Research Center.


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