China’s Property-Price Gains Slow for Second Month

July 12 (Bloomberg) -- China’s property prices rose at a slower pace for a second month after April’s record gain as the government cracked down on speculation, damping home sales in a bid to avert asset bubbles.

Prices in 70 cities rose 11.4 percent in June from a year earlier, according to a report today in the statistic bureau’s newspaper, China Information News. That compared with 12.8 percent in April and 12.4 percent in May.

Property prices slid 0.1 percent in June from the previous month, adding to signs that growth is moderating in the world’s third-biggest economy. Harvard University professor Kenneth Rogoff said July 6 that a “collapse” in real estate is beginning, while Barclays Capital forecasts prices may fall as much as 30 percent in the next 12 months.

“Chinese authorities appear very determined in regulating the property sector and policies are unlikely to reverse,” Peng Wensheng, the Hong Kong-based head of China research for Barclays, said before today’s release. “Price corrections are inevitable and that’s what the government would like to see.”

The value of property sales rose 25.4 percent in the first half of the year to 1.98 trillion yuan ($292 billion), slowing from the 38.4 percent gain in the first five months, today’s report showed.

Poly, China Vanke

China Vanke Co., the nation’s biggest listed developer, has cut prices and Guangzhou-based developer Poly Real Estate Group Co. reported slower first-half sales growth. A Shanghai stock index tracking 34 real-estate companies has tumbled about 28 percent this year, the worst performer among five industry groupings.

A slide in Chinese stocks this year highlights investors’ concern that the economy may slow excessively as the government trims stimulus measures and Europe’s sovereign-debt crisis threatens export demand.

The statistics bureau is due to announce second- quarter gross domestic product on July 15 after the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007. Goldman Sachs Group Inc. this month cut its forecast for full-year growth to 10.1 percent from 11.4 percent.

Cooling Speculation

Authorities intensified a crackdown on property speculation in April. Besides raising minimum mortgage rates and down-payment ratios for some home purchases, the government has pledged to boost land supply and the construction of low-cost public homes. Officials may also trial a property tax, according to state media.

Investment in real-estate development rose 38.1 percent to 1.97 trillion yuan in the first half of this year, almost the same as the gain in the January-May period, the newspaper said today. Sales by floor area increased 15.4 percent to 394 million square meters (4.24 billion square feet), it said. That compares with a 22.5 percent gain in the first five months.

Land Minister Xu Shaoshi said property prices will likely have an “overall” correction in about three months, the Securities Times reported July 5. In a meeting the previous day, Xu said authorities will continue to “actively conduct macro controls” on the property sector and also investigate land hoarding, according to a statement on the ministry’s website.

Extra Intensity

Xu’s comments indicate China will “intensify” the enforcement of land policies in the second half of the year rather than reverse them, UBS AG wrote in a July 8 note.

In Shanghai, new-home sales fell 57 percent in the first half, Shanghai Uwin Real Estate Information Services Co. said July 7. In Beijing, the decline was 44 percent from a year earlier, property research firm China Index Academy said July 2.

“This time around, Chinese policy makers are not simply curbing an overheating property sector, they aim for fundamental changes that will help to prevent more bumpy corrections in the future,” said Barclay’s Peng.

Property investment accounts for about 10 percent of gross domestic product and construction consumes half of the nation’s output of steel and 36 percent of the aluminum that it makes, JPMorgan Chase & Co. estimates.

Home prices are set to fall as much as 20 percent in a “healthy” correction, Michael Klibaner, head of China research at property broker Jones Lang LaSalle Inc., said July 7. The property boom has been driven by cash rather than debt, meaning there’s little chance of the forced selling that exacerbated the U.S. housing market collapse, he said.