Friday, August 17, 2012 - 22:08

China House Prices Improve More, Highlighting Policy Quandry

BEIJING (MNI) - July house price data highlighted an apparent quandry faced by Chinese policy-makers as more signs of improvement last month suggested that the housing market is one of the few parts of the economy that is responding to monetary easing.

Chinese house prices rose last month on a sequential basis for a second straight month, government data released Saturday showed, providing fresh evidence of a recovery in the market following interest rate cuts in June and July.

Nationwide, prices rose 0.15% in July, according to a floor-space weighted average of prices in the 35 largest cities calculated by MNI, following June's 0.13% increase, which had been the first rise since June 2011. Prices had fallen 0.15% in May, 0.43% in April and 0.47% in March.

On a year-on-year basis, prices were down for a sixth straight month, dropping 1.82% y/y, the second month of improvement following June's -1.98% and May's -2.0%. They fell 1.7% in April, 0.95% in March and 0.20% in February. Prices rose 0.5% in January and 1.6% in December.

Stripping out government subsidized housing, prices rose 0.18% m/m in July and fell 1.98% y/y.

The National Bureau of Statistics, which released the data on Wednesday, abandoned its own national price indicator last year as part of an overhaul of its methodology for collating house price data.

Prices in 58 of the 70 cities surveyed by the NBS fell in July on a year-on-year basis, the statistics office said (versus 57 in June, 54 in May, 46 in April and 38 in March).

But prices were down in just nine of the 70 cities on a month-on-month basis, a marked improvement over June, when they fell in 21 cities.

Senior leaders have repeatedly insisted that they have no plans to loosen housing curbs, even as overall economic growth has fallen to its lowest levels in over three years.

Concerns at the top of government about a housing bubble are so acute that some analysts believe signs of recovering prices have put plans on hold to loosen policy further, including a reserve requirement cut, if not another rate cut.

"Further policy easing is constrained in China as policy-makers have been increasingly sensitive to rebounding home prices amid the leadership transition," said Bank of America-Merrill Lynch as it cut its 2012 GDP forecast for China last week.

The overseas edition of the People's Daily, the party mouthpiece, said last month that easing property controls to support the economy was equivalent to "drinking poison to quench a thirst."

Among the biggest cities, signs of improvement were much clearer than the national average, even as the data suggested the market still remains relatively weak.

In Beijing house prices fell 0.7% y/y in July, better than June's 1.0% drop and May's -1.2%. Prices in the capital rose 0.3% m/m, matching June's performance.

In Shanghai, prices fell 1.5% y/y, also matching June's drop and marking a slight improvement over May's -1.6% and were flat relative to June on a sequential basis, when they rose 0.2% m/m.

In Guangzhou, which lies over the border from Hong Kong in the south, prices fell 1.3% y/y compared with June's -1.6%. Prices there dropped 1.6% in May, 1.2% in April and 0.3% in March.

But prices were up 0.2% m/m, matching June's increase, which had marked a turnaround from May's -0.1% and the 0.2% drops seen in April, March and February.

Among smaller cities, Wenzhou was again the stand-out, with prices plunging 15.6% y/y, worsening from June's 14.9% drop and May's -14.2%.

The city is a hub of private enterprise on China's east coast and victim of a localized liquidity crunch which has seen corporate officers absconding, leaving failed real estate deals and unpaid loans.

Prices fell 0.8% m/m in Wenzhou, worse than June's -0.6% but better than May's 1.8% drop.

Analysts warn that the NBS data doesn't fully capture price trends in the domestic housing market and so fails to the measure the full extent of price gains and falls. **MNI Beijing Newsroom +86-10 8532 5998**

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