Chinese property prices to drop next year; hard landing unlikely

Property prices in China are expected to decrease by about 20 percent in 2011 and the market is likely to readjust in March or April next year, says a report.

Prices will be pulled down by the Chinese government measures to cool the property market but the sector is not expected to suffer a hard landing, sChina Daily said on Monday, quoting a report by Renmin University of China.

Property developers are expected to face a sharp decline in access to capital in the first quarter next year. Besides, situation will be worsened by tighter financing, loan repayments and severe restrictions on property buyers, according to Liu Yuanchun, deputy head of the university's School of Economics.

Liu said such tight financial situation will only result in a sharp fall in prices and the market is likely to make a soft landing.

Property prices in China rose 8.6 percent in October year-on-year, compared with a 9.1 percent rise in September, according to the National Bureau of Statistics (NBS).

Chinese property prices growth slowed in October for a sixth consecutive month after peaking at 12.8 percent in April. The Chinese government stepped up controls to curb the property price rises in April.

However, home prices rose 0.2 percent in October, highlighting the need for further government controls to crack down on speculation and avert asset bubbles.

The Chinese government is planning to introduce a property tax to discourage property speculation and contain surge in home prices. The government already suspended mortgage loans for third home purchases and raised down payments for first time buyers.

In addition, foreign citizens are permitted to buy a single home for their own personal use and foreign institutions can only buy commercial property in the same city where they are registered, according to a notice released earlier this month by the Ministry of Housing and Urban-Rural Development and the State Administration of Foreign Exchange.

The People's Bank of China raised interest rates by 0.25 percent in October for the first time in three years to tame inflation and rising home prices.

However, property investment increased 37 percent in October on annual basis, taking the total investment in the first 10 months to 3.81 trillion yuan, up 36.5 percent compared with the same period last year.

Despite the central bank’s efforts to curb lending, the total lending in the first 10 months of the year reached about 6.89 trillion yuan ($1.03 trillion), against the official target of 7.5 trillion yuan ($1.1 trillion) in 2010.

Amid inflation worries, Chinese consumer confidence fell in the third quarter, recording a drop for the first time in six quarters, but some 62 percent of consumers surveyed expected housing prices to rise continuously over the next 12 months.