Hard landing unlikely for China's property market

China's property market, which has experienced disparate fortunes across the country over recent months, is unlikely to see a hard landing, experts have said at an ongoing forum.
"It's indisputable that the property market of some cities is entering an adjustment period, but it goes too far to say the market has reached the edge of collapse," said Zhu Zhongyi, vice president of the China Real Estate Industry Association, at the annual meeting of the Boao Real Estate Forum in south China's Hainan Province.
The meeting, which opened on Wednesday and closes on Friday, has attracted more than 1,000 delegates from the country's real estate-related sectors.
China's property market started to fragment last year, as home prices eased in smaller cities while prices remained stubbornly high in big cities. But the market has been heading downward as a whole in 2014.
New home prices in 55 of an official sample of 70 major cities dropped month on month in June, compared with 35 in May. New home prices fell in the first tier cities of Shanghai, Guangzhou and Tianjin, but not in Beijing. However, used home sales declined in all four cities.
Other key indicators for the sector were also disappointing. The total floor space of commercial housing sold dropped by 6 percent year on year in the first six months of the year, while the floor space of newly constructed homes was down 19.8 percent.
Zhu attributed the situation to oversupply, lending difficulties and the bearish sentiment of home-buyers, which will continue for a while.
The market fluctuation comes alongside China's efforts to restructure and de-leverage its economy. The country's growth dropped to 7.4 percent in the first half of 2014 from a 7.7-percent pace last year.
Like the broader economy that is making a soft landing after staggering growth in past decades, the property bubble is also gradually deflating as no mass bankruptcies have been reported, noted Fan Gang, director of the National Economic Research Institute at the China Reform Foundation.
Li Mingkai, president of the Hong Kong-based Centaline Group, a leading Chinese real estate agency, estimated that home prices will continue to decline in the second half of 2014 but that the number of home transactions will slightly pick up at the same time.
For the next two to three years, both home prices and the transaction volume will stay at the same level as the second half, Li predicted.
Despite the generally positive views, the property market remained the top concern among economists. Shen Jianguang, chief economist at Mizuho Securities, said it's good for the sector to correct itself before a crisis takes place, but it remains the biggest risk for the economy. And caution should be taken to facilitate a soft landing.
EASING UNDER WAY?
Concerned about the slowdown's impact on local growth, land sale revenue and social stability, local governments have started to ease home purchase restrictions set years ago as a tool to temper record prices.
Earlier this week, Foshan City in south China's economic hub of Guangdong became the latest region to lift home purchase restrictions. So far, more than 20 regions, mostly second- and third-tier cities where inventories are high, have lifted or eased their grip.
Unlike previous easing measures, which usually led to a rebound in the market, the loosening seems to have had little impact, however.
Both home prices and transactions dropped in Haikou, capital of Hainan, even after the city lifted its purchase ban in July. The "house-for-hukou" policy adopted by the city in June has so far attracted only 18 households to register their hukou, or permanent residential permit, in the city.
This underlines serious oversupply problems in smaller cities, which will suffer bankruptcies and credit crises if the oversupply is not properly dealt with, Li said.
The number of residential homes for sale has reached 134,000 in the downtown of Hangzhou in the eastern Zhejiang Province, which analysts believe will take at least 20 months to destock given the current slack sales.
"The ban-lifting is not a lifesaver," Li explained. "Recovery still relies on credit supply. As long as the country maintains a tight control on credit, a large price rebound is unlikely."
Chen Huai, a researcher at the Chinese Academy of Social Sciences, said there is no need to maintain purchase limits in cities with oversupply.
Opening second-tier and third-tier cities to immigration is in line with China's urbanization drive, so it makes sense for these bans to be removed, Chen said, adding that more cities will follow suit in the future.
IMPACTS ON ECONOMY
The property downturn has come amid subdued strength in the broader economy, challenging policymakers as the housing market has been a key growth engine.
While admitting the downturn has weighed on investment and downstream sectors such as steel and cement, Shen said that the government's measures, including increasing investment in infrastructure and affordable housing, as well as shantytown renovations, will help offset the impact.
Instead of introducing aggressive easing measures, the government will more likely rely on fine-tuning to put the sector back on track, analysts believe.
Chen said that tailoring macro-policies to deal with possible economic risks, pushing urbanization, establishing a housing security net, and advancing reforms in land and financial sectors, which will indirectly impact the property sector, will be top government tasks in the short run.
According to Zhu, the current market slowdown provides an opportunity for the government to accelerate property market reforms, including establishing a real estate registration system and a system to record individuals' housing ownership. Many believe these will pave the way for a basket of property-related taxes.