Caixin
Oct 21, 2016 06:41 PM

Property Curbs Hit Home as Price Increases Slow in First Half of October

(Beijing) — The series of home-buying restrictions introduced since late September appears to be having an effect on the property market, as government data on Friday showed home-price increases in 13 major Chinese cities slowing, and some even showing declines.

The news comes as questions are being raised about whether China's economic slowdown will worsen if the property market, a major pillar of the economy, continues to show signs of cooling.

Home prices in 13 big cities — including Tianjin, Hangzhou and Guangzhou — grew on average by 2.3% in the first half of October from half a month earlier, much weaker than the 4.7% gain in September, according to data from the National Bureau of Statistics (NBS).

Shenzhen and Chengdu, the capital of Sichuan province, even saw home prices decline, by 0.3% and 0.1% respectively.

Home prices in Shenzhen have been slipping in recent days, and further declines are expected toward the end of the year, Wu Xingjiang, a property agent in Shenzhen, told Caixin.

The number of home-buying transactions also declined, falling as steeply as 60% to 80% in four cities in the first half of October, said NBS senior statistician Liu Jianwei in a note accompanying the data, without specifying the names of the cities.

This turning point in the market follows moves by 22 cities across China to tighten rules regarding property purchases since late September, introducing measures such as increasing the percentage of a home's price that buyers must provide for down payments, and placing restrictions on buying second homes.

NBS spokesperson Sheng Laiyun said the real estate sector alone contributed to 8% of China's GDP growth in the first nine months from a year earlier. GDP growth has stabilized at 6.7% despite weaker investments and exports. However, this figure does not take into account other sectors related to property, such as cement, construction and household appliances.

With policymakers focusing more on risk mitigation rather than maintaining growth, moves to tighten home purchases and lowering leverage in the financial sector have started to have an adverse effect on the economy, said Zhang Yiping, macroeconomy analyst at China Merchants Securities, who predicted GDP growth will slow to 6.6% in the fourth quarter.

China International Capital Corp. economist Liu Liu predicted fourth-quarter growth will remain at 6.7%, citing a CICC report that argued cash normally spent on property could filter into other sectors and continue to support the economy.

But Industrial Bank chief economist Lu Zhengwei found that the largest contribution to economic growth in the third quarter was in fact made by the agriculture, forestry, livestock and fishery industries. However, Lu did not expect those sectors to further power the economy because they were not expanding fast enough.

Lu said that China's economy might experience its biggest slump in recent years after the second quarter of 2017, when the producer price index and corporate profits are expected to see declines, and support for economic growth from the financial sector — especially the stock market — will become weaker.

Contact reporter Coco Feng (renkefeng@caixin.com); editor Calum Gordon (calum@caixin.com)

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