BEIJING - Chinese housing prices have surged since March, but they will soon lose momentum and even start to fall around the end of the year, boding well for a more sustained contribution to overall economic growth.
A burst of lending in the first six months helped fuel a wave of pent-up end-user buying and speculative purchases, driving up prices for some projects in major cities by 20-30 percent and creating concerns about dangerous bubbles.
Speculative transactions are subsiding now; at the same time, a fresh round of property investments will increase supply.
The resulting moderation in prices, far from signaling the next phase of a boom-bust cycle, will probably pave the way for steadier demand from owner-occupiers, providing a valuable prop for an economy adjusting to a slump in exports, analysts say.
First we see transactions fall, then prices will decline, said Ge Haifeng, deputy head of data research at the Beijing-based China Real Estate Index System, which is affiliated with SouFun.com, China's biggest property website.
Transaction volumes in Beijing, for instance, fell 5.6 percent in August compared with July, the second straight fall after a four-month streak of gains, according to the city's housing management bureau. In the eastern port city of Ningbo, they were down 37 percent.
That has not been by chance.
Worried by the spike in house prices, authorities in Beijing, Shanghai and other major cities attempted to curb speculation by introducing measures in July to make it harder for people to apply for second mortgages.
Such moves will increase the cost of buying a home and push down prices, said Fan Jianjun, a senior researcher at the Development Research Center, a government think tank.
TWEAKS, NOT WHOLESALE CLAMPDOWN
The drop in new bank lending -- to an average of 383 billion yuan ($56 billion) in July and August compared with a monthly average of over 1.2 trillion yuan in the first half -- will also pull down transactions in the coming months, said Gao Shanwen, chief economist at Essence Securities.
Policy tweaks and slower lending will probably be enough for now, analysts say, allowing Beijing to stop short of declaring a full-fledged campaign to stamp out property speculation similar to one in 2007.
Ge projected that housing prices would drop toward the end of 2009 or early next year, by about 10 percent, much less than a 20-30 percent fall witnessed last year.
Song Li, a senior analyst at Centaline Property Research Center in Shanghai, gave an even bolder forecast: We expect prices to peak in September.
Andy Rothman with brokerage CLSA in Shanghai disagreed that the recent burst of buying and price increases made the sector vulnerable to a setback. He said the market was growing at a healthy, sustainable pace, driven by fundamental demand.
In our view, we are in the early stages of a long-running, moderately paced inflation cycle in residential real estate prices in China, Rothman said in a report.
BUILDING BOOM CONTINUES
Rothman saw a risk that increasingly tight supply could drive prices up too fast, but figures on housing starts and investment suggest that danger is unlikely to materialize for now.
The recent recovery boosted developers' confidence so much that many are replenishing their land banks. Some, like China Vanke Ltd (000002.SZ), Gemdale Corp (600383.SS) and Poly Real Estate Group Co 6000048.SS, have rushed to raise money for future expansion.
Nationwide, real estate investment rose almost 35 percent in August compared with a year earlier. The growth rate in July was 20 percent and just 1 percent in January and February.
The government also appears determined to avoid supply bottlenecks as more people look to buy their own homes.
The Ministry of Land and Resources said last month it would carry out checks on land that is lying idle, sending a warning to developers to either quicken their construction plans or hand back the plots to the government.
Beijing is unlikely to clamp down any harder in the near term given the importance of a healthy property sector to the overall economy, said Tao Wang and Harrison Hu with UBS in Beijing.
Building houses creates demand for materials and labor as well as for appliances and furnishings, stimulating consumption.
We think the recent strong momentum in property sales may taper off somewhat in the coming months, they wrote in a report.
Nevertheless, we think the construction and investment in the property sector will continue their path of recovery. While we expect more piecemeal measures to prevent housing prices from rising too rapidly, we do not expect an overall tightening.
(Reporting by Langi Chiang and Jason Subler; Editing by Alan Wheatley)