MNI 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

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