PBOC adviser says property controls to avert crash

Updated: 2010-04-24 14:03
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China's measures to rein in property bubbles will curb house prices while avoiding a crash, said central bank adviser Li Daokui.

The government aims only to "curtail excessive price gains in some areas," Li said in a phone interview Friday. "Cities such as Beijing, Shanghai and Shenzhen may experience some correction but price declines won't be more than 10 percent."

Li's view puts him at odds with BNP Paribas SA and Citigroup Inc, which forecast that home prices may tumble as much as 20 percent as measures to curb credit cool speculation. Efforts to tame spiraling property prices will "strike a deadly blow" against speculators, a government researcher wrote in the China Daily Thursday.

"We're not going to see significant downward pressure on property prices," said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. "This is not the kind of policy environment to trigger distressed sales."

Property prices in 70 Chinese cities surged by a record 11.7 percent in March from a year earlier, prompting the government to announce measures last week that increased the size of down payments, raised interest rates on second dwellings and barred banks from funding purchases of third homes.

China's State Council has approved a trial property tax program in four cities, the Economic Observer reported Thursday on its website, citing an unidentified person.

The trial will start in Beijing, Chongqing, and Shenzhen and then in Shanghai following the World Expo, the report said.

The recently announced policies "will reduce demand from investors and speculators who may find it more difficult to finance their purchases," Michael Wu, a director at Fitch Ratings in Hong Kong, said in a statement Friday.

Social Problems

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Li said the government is "resolute" in curbing price rises. The latest crackdown on prices won't lead to a property market slump because more measures will follow to increase the supply of lower-priced homes and that will "help stabilize the market and drive property investment going forward," he said.

The property market will not see price falls of 20 to 30 percent because that "could lead to new social problems," Li said.

The government's measures mean a "turning point" in the real-estate market is "unavoidable," Citigroup analysts Oscar Choi and Marco Sze said in an April 22 report.

Housing prices in so-called first-tier and second-tier cities are "clearly in a bubble," BNP economists Chen Xingdong and Isaac Meng said. "First-quarter property sales and prices could be at a significant cyclical peak."

Bursting the Bubble

Soaring real estate prices have prompted analysts including former Morgan Stanley economist Andy Xie to call the nation's asset markets a bubble that will burst once the Chinese government curbs credit.

China is "on a treadmill to hell," with growth driven by the "heroin of property development," hedge fund manager James Chanos said this month.

China's stocks fell Friday, pushing the benchmark index toward its biggest weekly decline in three months, on concern government measures to curb the property market will hurt corporate earnings.

A gauge of property stocks in the Shanghai Composite Index has retreated more than 18 percent this year. Shares of China Vanke Co, the biggest developer, have slid more than 27 percent.