China's property investment growth at four-month high in August

Beijing (Reuters) - China’s property investment grew at its fastest pace in four months in August, a boon for the economy as other sectors weaken from the Sino-U.S. trade war and consumer demand slows.

FILE PHOTO: Residential buildings under construction are seen in Jinpu New District in Dalian, Liaoning province, China March 19, 2018. China Daily via REUTERS/File Photo

Sales growth accelerated to the highest in more than a year but a surge in demand could be concerning for policymakers who want to reduce high household debt and manage potentital bubble risk.

Property investment is a significant contributor to growth in the world’s second-largest economy. A robust real estate industry has helped China counter a broader slowdown in its economy from a protracted trade war with the United States.

Property investment in August rose 10.5% from year earlier, quickening from July’s 8.5% pace, marking the fastest growth since April, according to Reuters calculations based on National Bureau of Statistics (NBS) data on Monday.

For January-August, property investment also grew 10.5% on year, versus a 10.1% gain in the same period last year and 10.6% in the first seven months.

The stronger August investment and sales readings come amid a prolonged contraction in factory activity and a sharper fall in producer prices for the month, which have fueled worries that a global recession may be around the corner as growth in China loses steam.

Property sales by floor area, a crucial barometer of demand, rose 4.7% in August year on year, up from July’s 1.2% growth and was the fastest growth since July 2018, Reuters calculations showed.

Major property developers, including China Vanke 000002.SZ and Country Garden holdings 2007.HK reported on-year increase in contracted sales in August.

For January-August, sales still fell on an annual basis, contracting 0.6% after a 1.3% decline in the first seven months.

Property prices are still growing at nearly 10% after more than three years of policy tightening. Some cities are showing signs of rapid cooling but others are plagued with overheating risks.

Among measures to support the economy recently, the central bank freed up 900 billion yuan ($127.2 billion) in liquidity earlier this month by cutting banks’ reserve requirement ratio (RRR).

The authorities, however, have vowed not to use the property market as a form of short-term stimulus while it steps up efforts to stimulate the economy.

In August, China’s banking and insurance regulator said it had uncovered a number of violations among small lenders such as extending loans to undercapitalized real estate projects and over-indebted local government platforms.

Indeed, new construction starts slowed as Beijing’s recent move to tighten control on speculative buying has dampened confidence in the sector.

New construction starts measured by floor area grew more slowly in August with a 4.9% gain from year earlier, versus July’s 6.6% rise, Reuters calculations showed.

For January-August, new construction starts grew 8.9% versus a 9.5% gain in the first seven months.

Sales growth could face stronger headwinds in the coming months as China steps up efforts to clamp down on speculative buying. In late August, the government said it would set a floor on mortgage rates for individuals, starting in October.

Average mortgage rates in August for both first and second home purchases in China were increased from levels seen in July, state-owned China Securities Journal said on Thursday citing a research report.

Funds raised by China’s real estate developers increased 6.6% from a year earlier in the first eight months, also lower than a 7% rise in January-July, according to official data, a sign of continued liquidity pressures for developers amid tightened scrutiny on loans flowing to the housing sector.

Reporting by Yawen Chen and Kevin Yao; Additional reporting by Roxanne Liu; Editing by Jacqueline Wong