Meltdown Takes Toll On China Sales

Sydney Morning Herald

Saturday September 20, 2008

Carolyn Cummins with Bloomberg

THE global meltdown on financial markets and a post-Olympics hangover is taking its toll on the booming Chinese economy.

While growth in Asian markets, led by China, is likely to continue, property prices in China are climbing at their slowest pace in 18 months, the nation's top planning agency said this week, admitting falling share prices and concerns about economic growth were deterring buyers.

The slowdown is likely to worry Australian property investors with exposure to the region. Prices on new homes in 70 major cities across China rose by 5.3 per cent in August from a year earlier, compared with 7 per cent growth in July, China's National Development and Reform Commission said. Existing residential housing prices rose 3.9 per cent from a year earlier, the smallest gain since the index started three years ago.

The data was released a day after China's central bank cut borrowing costs for the first time in six years and lowered the proportion of deposits the nation's smaller banks must set aside as reserves. China's dependence on real estate investment means the Government needs to shore up demand to prevent a slump spreading to the rest of the economy, analysts said.

"Falling transactions may turn into widespread price declines and dampen real estate investment, which accounts for one-fifth of China's total fixed-asset investment," said Fan Jianping, the chief economist at the State Information Centre in Beijing. "Subsequently, demand for steel, cement and other construction materials may shrink and many migrant workers may lose their jobs."

Property demand in some Chinese cities has almost halved in the year since the Government raised minimum down-payment requirements and increased rates on some mortgages to cool home prices. Property price increases have slowed for seven consecutive months from the record gain of 11.3 per cent in January, according to data from China's National Development and Reform Commission.

Gains in prices of new homes last month slowed to 6.2 per cent, down from 7.9 per cent in July - almost a third lower than the increase in August last year. Prices for existing homes rose at half the pace of the same period last year.

The People's Bank of China last week told smaller banks they could keep less of their deposits at the central bank to ease a credit crunch that has already bankrupted thousands of small businesses and made it more difficult for property developers to raise funds.

with Bloomberg

© 2008 Sydney Morning Herald

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