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Free AccessMNI INTERVIEW: China Property Growth to Slow: Govt Think Tank
By Iris Ouyang
BEIJING (MNI) - China's property market should further cool as the
country's urban renewal projects face tighter financing restrictions, a
government think tank researcher said in an interview with MNI.
For the last week, China's property market has been clouded by news that
China Development Bank (CDB) is tightening controls on lending to local
governments for so-called shanty-town renovations -- housing renewal projects
for China's rural slums -- which helped boosted growth in the property market to
record-high sales last year.
"Property markets in some tier-3 and tier-4 cities are overheating," Liu
Cheng, director of the investment department of China City Development
Academy(CCDA), said Tuesday in an interview with MNI. "These policy changes will
be a chance for such small- and medium-sized cities to prevent housing prices
rising to a too high level."
CCDA was managed by China's property regulator and is now a think tank
advising and researching for the country's economic planner, the National
Development and Reform Commission.
The CDB -- one of China's three policy banks who fund infrastructure
projects across the nation -- has asked its local branches to return the power
of approving loan contracts for shanty-town projects to the head office to curb
local governments' illegal practices of investing loans in commercial property
development. Consideration of new loans has also been postponed.
--CASH COMPENSATION CUT
The bank is also lowering the proportion of cash compensation for
low-income Chinese whose houses are torn down for urban renewal. The measure is
expected to reduce demand for property units built by developers in the open
market as a higher proportion of homeowners will be compensated with a house
built by the government.
The changes are a top-down decision to curb rampant growth of house prices
in small and medium-sized cities on strong demand from a rural population with
cash compensation from the government.
According to E-house, China's average national housing price in the first
five months this year grew 9.6% compared with the 5.6% gain last year. In May,
average housing prices in tier-3 and tier-4 cities accelerated by 0.5 percentage
point to 1%, compared with 0.7% in tier-2 cities, and a 0.2% drop in the larger
tier-1 cities.
"Home purchasing power in tier-3 and tier-4 cities will markedly drop,
which will effectively slow housing price growth in these cities," Liu told MNI.
He added it would also negatively affect land prices. Strong property sales
supported by shanty-town population pushed up land prices in Chinese
lower-tiered cities since last year.
"Property investment will slow at the local level as developers would be
less willing to invest in low-tier cities" where demand is expected to drop.
--LEVERAGE CONCERNS
The CDB's moves signal that the central government is increasingly
concerned about high leverage in home purchases that could enlarge a bubble in
the property sector. Shanty-town home owners may use the cash compensation from
the government as down payment, together with mortgages from commercial banks,
increasing leverage in home purchases, Liu told MNI.
Shanty town housing projects will still advance to reach China's goal to
finish the 5.8 million-unit renewals this year, Liu said, adding growth of house
prices in lower-tired property markets will "return to a rational status" on the
CDB measures.
"Growths of property investment, housing starts, and sales are expected to
slow to some degree," Liu told MNI. "Because control policies still remain tight
in large cities, small and medium-sized cities now face changes to shanty town
policies, while property developers face increased financing difficulties."
--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com
--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: M$A$$$,M$Q$$$,MGQ$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.