More help likely for ailing Chinese property market

By Langi Chiang - Analysis

BEIJING (Reuters) - China is likely to roll out more measures before long to stimulate demand for housing, but recovery in the all-important property market is unlikely for another year.

Nationwide urban real estate prices rose only 1.6 percent in the year to October, the weakest rise since Beijing started publishing the data in 2005, and economists expect prices soon to be in outright decline despite steps to boost the economy.

"The immediate impact of the stimulus policies is limited," said Li Zhanhong, vice president of Jinke Group, a developer headquartered in the western city of Chongqing.

China lowered mortgage rates, reduced down payments and cut transaction taxes on October 22 to make it easier for people to buy homes. Then on November 9 it unveiled a broad package to stimulate domestic demand with a headline price tag of 4 trillion yuan. ($586 billion).

Comments a day later by Premier Wen Jiabao raised expectations that additional steps could emerge when top officials gather to chart economic policy for 2009.

Wen instructed provincial officials to "properly guide and control" the real estate sector, which he described as a pillar industry critical for everything from steel to home appliances.

"That's the strongest signal yet, which says that the government is going to support the real estate market," said Lu Zhengwei, chief economist of Industrial Bank in Shanghai.

Analysts say China still has plenty of policy leeway to aid a sector that makes up a quarter of China's fixed asset investment, for example by further cutting taxes and mortgage rates.

"More forceful measures will come out during the economic work conference later this month," said Fan Xiaochong, vice president of the Beijing-based Sunshine 100 Real Estate Group.

OVERSUPPLY

The problem for developers is that policies in the pipeline, notably a plan by the Ministry of Housing and Urban-Rural Development to spend 900 billion yuan on affordable housing over three years, are likely to lower average house prices.

Stephen Green, head of China research at Standard Chartered Bank in Shanghai, said the laudable aim was to provide subsidised housing for low-income migrant workers. The initiative would also stir demand for cement, steel and construction workers.

But he said it could face opposition from developers and local governments. Low-cost housing is less profitable than high-end developments and, despite market segmentation, will augment overall supply in a market that is already overstocked.

"The developers -- a considerable political force in Beijing, some believe -- will not be fans since the policy runs the risk of bringing down urban house prices," Green said in a report.

Mingchun Sun, an economist for Nomura in Hong Kong, judges that oversupply is so great that prices could fall 20 percent from peak to trough, but by no more than 30 percent.