China's home price growth steadies in September as speculative curbs weigh

BEIJING (Reuters) - China’s new home prices registered a second straight month of weak growth in September, with prices in the biggest markets slipping and gains in smaller cities slowing as government measures to cool a long property boom took hold.

FILE PHOTO - Residential buildings are seen in Beijing, China, January 10, 2017. REUTERS/Jason Lee/File Photo

China’s housing market has been on a near two-year tear, giving the economy a major boost but stirring fears of a property bubble even as authorities work to contain risks from a rapid build-up in debt.

While monthly price rises peaked in September 2016 at 2.1 percent nationwide, they have softened only begrudgingly since then, regaining momentum as buyers shrugged off each new wave of measures to curb speculation.

Analysts say more tightening could still be expected in lower-tier cities with relatively fast price gains, as critics argue China’s ever-growing administrative control over its property market has only reaffirmed speculator views that prices will remain steady.

“China’s property prices are still rising even as sales are falling off a cliff, which suggests the market still sees property as an investment product in the belief that the government won’t let prices fall,” said Yi Xianrong, a Professor of Economics at Qingdao University.

Still, signs of a more stable and less frothy housing market for now will be welcome to the country’s leaders as they attend a critical Communist Party Congress to set political and economic priorities for the next five years.

President Xi Jingping opened the twice-a-decade gathering last week, stressing the need to move from high-speed to high-quality growth.

Average new home prices rose 0.2 percent month-on-month in September, the same rate as in August when prices rose at the slowest rate in seven months, according to Reuters calculations from National Bureau of Statistics (NBS) data out on Monday.

“The curbs are in general still intensifying, which have gradually impacted property buyers’ expectations,” said Zhang Dawei, an analyst with Centaline, a property agency.

New home prices rose 6.3 percent year-on-year in September, decelerating from August’s 8.3 percent increase, partly thanks to last September’s high base.

Higher prices are also eating up more of home buyers’ disposable income, which could dampen future demand.

The head of the central bank warned last week that China’s household debt is rising too quickly, and some analysts suspect a recent burst of consumer loans points to the illicit use of loans for property investment.

As mega-cities like Beijing imposed increasingly stringent measures, speculators have moved to smaller centers this year where local governments offer cheap credit and impose few restrictions in the hopes of clearing a glut of unsold homes.

Prices for new private homes in China’s top-tier cities fell 0.2 percent in September versus a 0.3 percent decline in August, the NBS said in a note accompanying the data.

In southern boomtown Shenzhen, which borders Hong Kong, prices stabilized after a drop of 0.4 percent in August.

However, some second- and third-tier centers such as the southern town of Guilin have also been forced to impose curbs in recent months, banning some buyers from quickly “flipping” properties.

Tier-3 cities rose 0.2 percent from a 0.4 percent increase in August, the NBS said in the note.

More curbs are likely to be introduced in lower-tier cities, some analysts say. Yan Yuejin, an analyst with Shanghai-based E-house China R&D Institute, said smaller provincial capitals with faster gains in recent months such as Guiyang and Shenyang could be tightening controls in the fourth quarter.

While market watchers do not anticipate significant price declines let alone a crash, weakness in property and construction is starting to drag on broader economic growth.

Data last week showed GDP growth eased to 6.8 percent last quarter from 6.9 percent in the first half, with a marked deceleration in the property sector.

Property sales dropped for the first time in more than 2 1/2 years in September and housing starts slowed sharply.

The majority of the 70 cities surveyed by the NBS still reported a monthly price increase for new homes, although the total dropped to 44 in September from 46 in August.

China’s housing minister said on Sunday that property sales will slow in the fourth quarter but prices will remain stable.

Wang Menghui, head of the housing and urban-rural development ministry, said the government will keep measures consistent and not loosen controls, a pattern that has been seen before in China when prices start to soften more quickly than intended.

Reporting by Yawen Chen and Ryan Woo; Editing by Eric Meijer