Pan Shiyi, chairman of developer Soho China Ltd and an influential figure in the mainland real estate sector, told Hong Kong shareholders Tuesday that mainland property prices could fall as much as 20 percent following the central government's recent tightening measures.

As a result of the government clampdown on the overheating mainland real estate market, "home prices are expected to retreat to levels (seen) in earlier 2009, implying a 15 percent to 20 percent fall in prices on average," Pan said after the developer's annual general meeting.

A series of policies has been rolled out over the last couple of months in the mainland to curb property bubbles from swelling, with the most severe measures introduced in the second half of last month. These include restrictions on lending to non-resident buyers, higher down-payment requirement for second-home purchases and the banning of mortgage loans for third-home purchases.

Pan warned that more tightening could come if home prices do not come down by as much as the government expects.

One possible measure that could be implemented by regulators later this year is to impose restrictions on the use of cash generated from pre-sales by developers, he suggested.

Another potential measure is to divert bank loans to project contractors from developers, he said.

Both measures will put pressure on developers' cash flows, as their operations rely heavily on bank financing and cash from pre-sales.

"These policies mainly aim at preventing developers from hoarding land," Pan explained, noting that the second measure could be implemented as earlier as this month.

Many property analysts hold a similarly cautious view as tycoon Pan does about the outlook for the mainland real estate market.

"Home prices may retreat to levels in the third quarter of last year, implying a 10 percent fall on average and as much as more than 20 percent in some cities," Christina Ngai, a property analyst at Cinda International Holdings Ltd, a unit of the State-owned China Cinda Asset Management Corp, told China Daily.

"This expected correction in prices is normal, considering the fact prices have soared in recent months," she added.

On the possibility of further tightening moves by the central government, the analyst said, "I won't exclude the possibility, if developers do not slash their selling prices as the government has been expecting."

Property analysts at Citigroup are also bearish on the prospects for the mainland property sector in the short- to medium-term.

Property prices in key cities may fall as much as 25 percent from current levels, while transaction volume may decline 25 percent this year from last year, Citigroup analysts led by Oscar Choi said in a note to investors.

Investors should stick with "quality defensive names" such as China Overseas Land & Investment Ltd, Shimao Property Holdings Ltd and China Resources Land Ltd, they said.

Soho's Pan noted Tuesday after the company's AGM that the transaction volumes in many tier-one cities have been declining significantly after recent tightening measures.

The expected fall in home prices will likely be seen in the coming months, he predicts.

China Daily

(HK Edition 05/12/2010 page2)