China's home prices to rise 6.8 percent this year as small city sales boom: Reuters poll

BEIJING (Reuters) - China’s home prices in 2017 are likely to rise more than previously estimated despite a flurry of government curbs to crack down on speculation, a Reuters poll showed on Tuesday, soothing fears the economy would slow sharply.

A woman walks past a residential compound in Beijing's Tongzhou district, China, February 25, 2016. REUTERS/Jason Lee

Property prices will continue to creep steadily higher amid heavy government intervention helped partly by a shift in demand to the country’s smaller cities, according to the poll which surveyed 13 property analysts and economists from Aug. 21-28.

Average nationwide home prices were expected to rise a median 6.8 percent this year compared with a median expectation of 2 percent growth in the last poll in February.

Prices of new homes in China grew 12.4 percent in 2016, the fastest rate since 2011.

A resilient property market will be good news for China’s policymakers, who want to keep the real estate market stable ahead of a once-in-five-years Communist Party congress.

The authorities have defences already in place to guard against bubble risks in its hottest markets but the home-buying frenzy has reached the smaller cities, where local governments offer cheap credit and impose next to no restrictions.

The majority of the analysts surveyed are convinced current measures, first introduced in late 2016 and since fortified, will remain in place for the next one to two years.

Most of them expect policymakers to roll out more long-term measures targeting structural imbalances, such as a property tax, pointing out that current administrative curbs are anti-market in nature and unsustainable.

“Usually tightening policies won’t last for more than 3 years; it’s impossible to always tighten and the effects wane as time goes by,” researchers at the Bank of Communications said.

“That’s exactly why there’s more urgency to establish a long-term mechanism to stabilize the housing market,” they said in a research report.

But authorities have been walking a fine line between curbing excessive price gains and clamping down too hard on a sector which accounts for about 15 percent of the economy.

Beijing has tightened monetary conditions this year to tackle its growing debt pile as mortgages soar, but credit is still growing faster than economic output and most China watchers don’t expect the central bank to tap too hard on the brakes.

As deleveraging continues after the economy clocked 6.9 percent GDP growth for the first two quarters on a surging property market and an infrastructure binge, analysts expect slightly slower economic growth in the coming quarters.

“We think the biggest risk facing the housing market is that China’s real economy may continue to slow, prompting the government to continue to oversupply credit, which would then flood the property market,” wrote Sun Binyi, a researcher with China Real Estate Appraisal.

When asked to rate affordability of Chinese housing on a scale of 1 being the cheapest and 10 the most expensive, the median answer was 7. That is in line with what analysts rated in the last poll, though some analysts have pointed out smaller cities are much more affordable than the biggest cities.

Reporting by Yawen Chen and Elias Glenn; Additional Reporting by Jenny Su; Editing by Jacqueline Wong