Monday, 1 March 2010

S&P predicts China property correction by mid-year

The mainland property market will see a correction this year due to slower demand, higher supply, tightening liquidity and the effects of government measures to cool speculation, according to Standard & Poor’s Ratings Services.

1 comment:

Guanyu 道 said...

S&P predicts China property correction by mid-year

Peggy Sito
26 February 2010

The mainland property market will see a correction this year due to slower demand, higher supply, tightening liquidity and the effects of government measures to cool speculation, according to Standard & Poor’s Ratings Services.

“The middle of 2010 could be a potential turning point for many developers as increased supply leads competition to intensify and Beijing’s initiatives weaken demand,” said Bei Fu, an associate director of corporate ratings at S&P.

“The market will shift from more or less the seller’s market to more or less the buyer’s market.”

Housing prices in mainland cities surged last year, with those in Shenzhen soaring 80 per cent, while Shanghai and Beijing saw leaps of 60 per cent.

The rapid growth in the industry has prompted the government to announce various economic tightening measures, including increased deposit reserve requirements, reductions in bank credit growth and restrictions on loans to developers with idle or unpaid-for land.

S&P said the government may take further steps as it aims to combat excessive growth and irrational price rises that could cause an economic imbalance and fuel inflation.

The ratings agency said these extra measures could include higher interest rates, further increases in down payments and the introduction of a property tax.

The current measures have already hit demand with sales activity in many cities plunging more than 50 per cent in January from December.

But prices have stayed firm. The National Development and Reform Commission reported that prices in 70 mainland cities last month were up 9.5 per cent year on year and 1.7 per cent month on month.

While Fu predicted a meaningful correction by the middle of the year, she did not expect it to be as severe as in 2008. “Policy introductions this year will be in a gradual and cautious manner. Stability will be the focus.

“We stand by our neutral outlook for the real estate sector this year, due to the market’s continued uncertainties but supportive underlying fundamentals, including a strengthening economy,” she said.

Fu said bigger and stronger property players will do even better as they have the scale and financial resources to grow, while smaller companies will find the market conditions more challenging. “We expect to see more mergers and acquisitions in the sector,” she said.