Housing Price Falls Expected as Cooling Measures Bite

Measures to rein in China's soaring home prices are beginning to see results, and price declines are expected in later half of the year, say economists and market watchers.

The recent fall in trading volume and slower growth in prices was largely a result of the measures the government had rolled out since April, said Professor Chen Guoqiang, of China's Peking University.

Home prices in 70 large and medium-sized cities rose by 12.4 percent year on year in May, 0.4 percentage points lower than the rise in April, according to the National Bureau of Statistics (NBS).

According to Beijing Municipal Bureau of Statistics (BMBS), only 3,028 second-hand homes were sold through 15 major estate agencies in the city in May, down 64.8 percent year on year and 70.7 percent month on month.

Meanwhile, average prices for second-hand homes stood at 12,661 yuan per square meter, down 2,577 yuan from April, said a report on the BMBS website.

"I can say the rising trend in China's home prices has been curbed initially," said Chen.

A report from Centaline China Property Research revealed second-hand home prices in other major cities also fell. In Shanghai prices dropped by 2.5 percent last month from April and in Guangzhou by 1.5 percent.

The second-hand home market was more sensitive to policy shifts as developers were still cash-rich due to last year's boom, and had little incentive to cut new home prices, said Centaline research manager Qu Anxin.

In a bid to curb soaring prices and prevent an asset bubble, the government tightened scrutiny of developers' financing, curbed loans for third-home purchase, raised minimum mortgage rates and tightened downpayment requirements for second-home purchases.

"People are not expecting these measures to do immediate wonders on the market..., but if policy support continues, a price decline can be expected," said UBS Securities economist Wang Tao.

The downturn would put no short-term pressure on construction, as the government was focusing more on building affordable homes, which would offset a decline in construction of commercial housing, said Wang.

"Construction activities will eventually be influenced by the cooling measures and slow down six months later, while market demand for construction materials will fall at the same time," she said.