China’s property market could threaten Beijing’s plan to manage a slowdown in growth, as evidence mounts of a rapid cooling in what had been one of the few strong spots in the world’s second-largest economy. So far, the economic story is going to script, with growth of 7.4 per cent in the first quarter from a year earlier. While the slowest pace in 18 months, it was just ahead of market expectations and seemed to soothe fears of a sharp downturn.
But marked decelerations in property investment and sales, and a contraction in housing starts in the first quarter, point to weakness in a sector that supports some 40 other industries, ranging from cement to furniture, and plays an important role in underpinning consumer confidence.
‘We think weaker property activity poses a key downside risk to GDP growth this year,’ Tao Wang, economist at UBS said in a note to clients.
Home price data on Friday is expected to show a further moderation in March after gains fell to a six-month low in February.
Property investment generated about 12 per cent of China’s GDP in the first quarter, down from a 15 per cent contribution in 2013, Reuters calculations based on official figures showed.
The sector has lost steam since late 2013 as authorities tightened controls on speculative buying, and as banks made it harder for home buyers and small developers to get loans.
Media have reported developers have cut home prices in the eastern cities of Hangzhou and Changzhou and in the western city of Chengdu, and some developers have missed loan repayments.
‘We cannot continue to count on fast growth in the property industry to bring in strong sales of furniture and big revenues from land sales,’ said Lv Fengyong, a researcher at the Chinese Academy of Social Sciences (CASS), a government think-tank.
Annual growth in property investment slowed to 16.8 per cent in the first three months of the year from 19.3 per cent in the first two months, pulling total investment in the economy down to a level not seen since December 2002, official data show.
Newly started construction dropped 25.2 per cent in the first quarter from a year ago.
And figures from the land ministry show residential land price gains slowed for the first time in nearly two years in the first quarter, and are likely to slow further.
‘The 20 per cent annual property investment growth seen in the previous year will not appear again,’ said Lv at CASS.
A Reuters poll earlier in April found the chance of a price correction in large cities was seen as slim this year, though some corrections could happen in small cities.
‘We expect that most developers will accelerate their sales in the next couple of months and that price-cutting looks inevitable to mitigate the impact of rising mortgage costs,’ Alvin Wong, a property analyst at Barclays, said in a note.
-With New Age input
