China property investment growth cools in Oct, sales decline accelerates

BEIJING (Reuters) - China’s October property sales and new construction starts fell in October as the property market cooled from a two-year boom in the face of a tighter liquidity environment and a crackdown on riskier lending.

FILE PHOTO: New properties are seen near a square in Zhengzhou, Henan province, China, September 23, 2016. REUTERS/Yawen Chen/File Photo

Real estate investment growth also cooled in October, in line with expectations, as the government looks to engineer a soft landing for the property sector amid a gradual slowdown in China’s economy.

Real estate, which directly affects 40 other business sectors in China, is a crucial driver for the economy but also poses a major risk as Beijing looks to tame soaring home prices without triggering a crash.

Property sales by floor area fell by 6.0 percent in October from a year earlier, compared with a 1.5 percent decline in September, according to Reuters calculations. The decline was the biggest since the first two months of 2015.

“(That decline) is exactly what the government is looking for,” said Jonas Short, who heads the Beijing office at investment bank Sun Hung Kai Financial (SHKF).

“What’s driving a lot of the declines, particularly in sales, is mortgage rates spiking up.”

Sales by value fell by 1.7 percent on-year for the month of October, the first decline in monthly property sales value since March 2015, and compared to a 1.6 percent gain in September.

Data on Monday showed household loans, mostly mortgages, fell to 450 billion yuan in October from 735 billion yuan in September, Reuters calculated from central bank data, alongside reports that banks have slowed mortgage approvals.

Property investment grew 5.6 percent in October from a year earlier, cooling from expansion of 9.2 percent in September, Reuters calculated from National Bureau of Statistics out data on Tuesday. October’s growth was the slowest since July.

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 the authorities try to contain risks from a rapid build-up of debt.

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

China’s outstanding household consumer loans surged nearly 30 percent by end September from a year earlier, data showed.

Taming the overheated property market has been a top priority for China’s policymakers this year as they looked to ensure social stability and reduce risks to the financial system as China shifted to focus more on high-quality growth in its economy.

Investment in the first 10 months of the year rose 7.8 percent from a year earlier, compared with 8.1 percent in Jan-Sept. The figure focuses mainly on residential real estate but also includes commercial and office space.

New construction starts measured by floor area, a telling indicator of developers’ confidence, were down 4.3 percent in October from a year earlier, after only rising 1.4 percent in September, Reuters calculations showed. The biggest previous decline was 7.0 percent in July.

Home prices in the biggest cities have softened slightly and gains in smaller cities have slowed in response to cooling measures, though there have been no hints of a crash which could destabilize the economy or stir social unrest.

Chinese authorities have intensified efforts to curb illegal financing for mortgage down payments and have asked banks to step up checks on home buyers’ income authenticity, the official Xinhua news agency reported in early November.

China’s economy surprised financial markets this year with 6.9 percent growth through the first three quarters, and analysts say resilience in manufacturing, infrastructure investment and consumer spending could offset a slowdown in property.

“I think this is exactly what the government is looking to do. I don’t see them changing their policy course,” said Short, referring to government efforts to cool the property market.

“The economy is fundamentally strong in other areas...industrial production is only moderating, it’s still at really high levels. There’s other areas and other levers that the government is willing to lean on.”

Reporting by Stella Qiu and Kevin Yao; additional reporting and writing by Elias Glenn; Editing by Eric Meijer