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China on course to squeeze property bubble

(Xinhua)

12:40, October 05, 2011

File photo taken on Sept. 8, 2011 shows a traffic sign in front of residential buildings in Qingdao, east China's Shandong Province. (Xinhua/Huang Jiexian)

BEIJING, Oct. 5 (Xinhua) -- After nearly two years of government efforts to cool the country's rampant property market, prospective homeowners are finding that housing prices may fall within their reach before long.

Home sales are drying up in many cities. Property developers are feeling strain from the credit crunch and higher borrowing costs. Analysts said real estate firms may be forced to cut prices due to the government's firm grip on the market, which has included purchase limits in cities and reduced liquidity.

Other measures put in place include higher down payments, the introduction of a property tax in some cities and the construction of low-income housing projects.

SIGNS OF PROGRESS

In the first half of September, contract sales for new homes in Beijing stood at 2,056 units, down 16 percent from the first half of August and down 33 percent from the second half of the month, according to figures from Basic-5i5j, a major real estate sales and consulting firm based in Beijing.

Sales of new homes and existing homes fell 26.4 percent month-on-month to reach about 13,000 units in August, the lowest amount sold since 2009, according to a Beijing-based real estate transaction management website.

New home prices slid 2.5 percent from July and second-hand homes edged down 0.9 percent in August. Shanghai and Shenzhen also suffered sluggish housing sales.

Hurt by the gloomy sales, property prices in other cities have started to drop after defying government controls for months on end.

The latest figures from the National Bureau of Statistics showed that 46 cities out of a statistical pool of 70 major cities saw new home prices decline or remain unchanged from a month earlier in August, compared with 31 cities in July. Sixteen cities saw month-on-month decreases in new home prices in August, up from 14 in July.

"The reason why housing prices are so difficult to tame is because of the record lending boom that occurred in previous years, local governments' reliance on land sales for revenue and the expectation that housing prices will always continue to rise," said Yin Zhongli, a property and financial expert from the Chinese Academy of Social Sciences, a government think tank.

To drain excessive money out of the market, the People's Bank of China, the country's central bank, has raised its reserve requirement ratio for banks 12 times and hiked interest rates five times since the beginning of last year.

China's property developers will face increasing liquidity pressure over the next six to 12 months, with tightening credit conditions possibly resulting in decreased prices, U.S.-based financial services company Standard and Poor's said on last week.

"The recent figures indicate that the government's measures are having a gradual impact," said Wang Pei, a property analyst from CEBM Group Ltd., an independent investment advisory firm. He said that he expects average housing prices across the country to decline starting from September, with property investment slowing down during the period as well.

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Jean-Francois Morf at 2011-10-0681.13.252.*
What is the effect of rising financial costs +10% "for reducing inflation" ?Villas coming on market 1 year after rate rise will cost +10% more!Locatives coming on market 2 years after rate rise will cost +20% more!Skyscrapers coming on market 3 years after rate rise will cost +30% more!Now every Chinese will think that real estate take +10% value per year, and every Chinese will desire to invest into real estateYou see how financial costs inflation create more inflation and more demand!Since 20 years long, bank of Japan reduced rate, and to 0%: did it create hyper-inflation? NO: it created price stability!Did it make the JPY fall? NO: JPY is higher then ever!You see that all monetarist dogmas are false!Keynes said: central banks must create millions new jobs, paid with just printed money, and this will NOT create hyper-inflation! Keynes did not say: QE1 and QE2 must be used by bankers for inflating cereal prices, for starving 46 millions US jobless homeless peoples, and for killing millions African poor citizens!
Dan at 2011-10-0583.218.132.*
"The expectation that property prices will always continue to rise". This is a very strange belief. Karl Marx spent a great deal of time and effort explaining and analysing why that is the last thing you should expect, and he is correct.
  

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