Property price growth slows down
(Business Weekly)
Updated: 2004-12-12 09:47

Statistics indicate that the growth in property price slowed in October, the month of the bank interest rate hike, but analysts say the figures are far from decisive in adjusting the future trend of China's real estate market.

The National Bureau of Statistics (NBS) said late last month that average property prices in China's main cities rose 11.7 per cent year-on-year in the first 10 months, down from the 13 per cent growth in the January-September period.

Prices for residential and commercial property averaged 2,758 yuan (US$333.10) per square metre, the NBS said on its website.

The average price of residential property rose 10.2 per cent to 2,566 yuan (US$309.90) per square metre between January and October.

Investment in homes, offices and other commercial real estate increased 28.99 per cent to 952.6 billion yuan (US$115.05 billion), up from 28 per cent in the first nine months of the year.

The growth rate of property prices slowed in October, when the People's Bank of China, the nation's central bank, raised interest rates for the first time in almost a decade.

On October 28, the central bank raised the benchmark, one-year lending rate from 5.31 per cent to 5.58 per cent, and the one-year deposit rate from 1.98 per cent to 2.25 per cent.

Su Huajun, a columnist with Guangzhou-based Information Times, said that by slowing housing price increases, the rate hike began to show its initial effects.

He added that although the interest rate increase took place on October 28, rumours had been rife in October so people became more cautious in buying properties.

The interest rate hikes, which mean it will cost people more to repay their mortgages, commonly dampen people's desire to buy property.

Su was echoed by media in Beijing and Shanghai.

Market research company AC Nelson joined this chorus by reporting the results of its most recent market research on consumer confidence carried out in October.

In a new release, the company says that the research shows 25 per cent of consumers have expenditure in property and/or housing decoration while a previous survey earlier this year indicated 40 per cent of consumers had such spending.

Despite the looming effects, Wang Hong, a professor of property finance at Tsinghua University, said it is too early to see the real housing price trend.

The interest rate hike is only one of many factors contributing to the changing property price. Credit, land supplies and demands are more important compared with the 0.27-percentage-point interest rate growth, Wang told China Business Weekly.

China on September 1 banned all private transactions of land, and ordered that all land transfers be completed publicly in government-run land-transaction centres -- either through public tenders or auctions.

Land supplies have dwindled since then, and analysts expect the trend to continue next year.

Limited land supplies and tightened bank lending policies during the current macro-economic adjustment may result in continually rising prices within the property sector despite the rising interest rate, said Zhang Baoquan, a leading real estate developer and deputy chairman of the Chamber of Commerce for the Housing Industry.

Surging demand and people's concerns about the reduced housing supplies have made China's vacant property fell 3.7 per cent year-on-year to 97.77 million square metres at the end of October.

The booming market also spurred real estate developers to develop 134 million square metres of land in the first 10 months, rising 9 per cent year on year. During the period, the completed property areas rose by 9.8 per cent to 198 million square metres.

An Li, an analyst with Beijing property consultant BA Consulting, added that the real effect of the interest rate hike and people's expectations are very different.

Before the interest rate rise, the market might have been dominated by rumours and people do not know how big the impact of the interest rise will be on the market. So the best choice for them at the moment is to wait and see.

But when they saw the interest rate hike was only 0.27 percentage points, they could not curb their desire to buy properties, An told China Business Weekly.

It is still unclear how long the two-digit growth rate of property price will last, but An expected the tightened land supply and credit control will continue until next year.

"If there is no other measures, such as another interest rate hike with bigger degree, the price trend is unlikely to change over short term,'' An said.

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