Bubble concern : China’s home prices “won’t drop too much” – developer

Official statistics released last Thursday showing sales of existing housing in Beijing falling 38 percent and units falling 64.2 percent in a month has prompted fears that the housing bubble in China may be losing momentum.

Henry Cheng, the Managing Director of New World Development Co, a Hong Kong property developer who develops property in mainland China, said “China’s home prices won’t drop too much, as the government can’t allow prices to plunge because the real estate market is an important pillar of the economy” after Beijing reported falls in prices of 4.6 percent last month. “If too many people lose their money on real estate, it will be bad for the economy; it’s the same rationale in Hong Kong.”

The Chinese Government has been working to contain the bubble, increasing reserve requirement for banks this year after credit growth surged out of control in January. Today, it was reported policy makers has banned banks from lending to developers found to be landbanking or holding back sales to pump up prices.

But while the Central Government is trying to cool the market, State owned enterprises (SOEs) are bidding up prices. Record land prices in Beijing was broken twice on Monday by bids from SOEs.

Wong Siu Kong, chief executive of property developer Kerry Properties Ltd, said “The government’s policies may create volatility in the market, but price drops would be limited this year as the real estate market fundamentals haven’t changed.”

» China’s home prices ‘won’t drop too much’ – China Daily, 18th March 2010.

» New real estate elephants – China Daily, 18th March 2010.