Tuesday, January 18, 2011

Fears of more curbs take toll on China developers

(SINGAPORE) Home prices in China continued their ascent in December, triggering fears that the government will introduce more measures to tighten the property market.

Shanghai has joined Chongqing in announcing plans to introduce a property tax. China's central bank also raised banks' reserve requirement ratio last week. As market wariness grew, share prices of major Chinese developers fell yesterday.

In Singapore, analysts do not expect the property tax to significantly hurt local developers with businesses in China. Still, many property counters endured a difficult day on the stock market as cooling measures imposed last week continued to haunt.

According to China's statistics bureau yesterday, home prices in 70 major cities in December rose 6.4 per cent from the previous year, and 0.3 per cent from November.

Prices resisted downward pressure from several curbs introduced by the authorities in the months before. These include a suspension on mortgages for third homes, higher mortgage rates and a crackdown on developers building high-end properties on land sold for affordable housing.

Last week, Chongqing mayor Huang Qifan said that the city will launch a property tax on a trial basis. Over the weekend, Shanghai mayor Han Zheng unveiled a similar move.

'We will step up macro-control measures, prioritise the supply of non-luxury residential units to be owned and occupied by ordinary citizens, and prepare for the trial reform on property tax as required by the central government,' Mr Han said, as Bloomberg reported.

There are no details on how much the property tax will be or when it will take effect. Nomura predicts that the tax could be around 0.8 per cent.

As fears of further tightening surged, China Vanke slid 7 per cent to 8.42 yuan (S$1.64). Poly Real Estate Group also dropped 9 per cent to 13.60 yuan.

Analysts BT spoke to did not seem overly concerned about how the property tax could affect Singapore developers with businesses in China.

Developers with assets in China include CapitaLand, Keppel Land, Frasers Centrepoint (the property division of Fraser & Neave) and GuocoLand. Yanlord and Pan Hong are Chinese developers.

The projected size of the property tax is small and the impact is unlikely to be drastic, said Kim Eng analyst Wilson Liew. 'Also, Singapore developers do have a long term strategy in China... They see housing demand underpinned by fundamentals such as growing affluence and urbanisation rates.'

UOB Kay Hian analyst Vikrant Pandey said that most developers here do not have a big exposure to China - the exceptions are CapitaLand and Guoco- Land.

In response to queries from BT, CapitaLand said that it welcomes measures from the Chinese government to curb speculation, and it remains optimistic about China's property market.

The group has diverse businesses in the mainland and 'any impact from the property measures will be mitigated', a CapitaLand spokesman said. 'In the residential sector, the market demand remains strong, supported by genuine homebuyers and robust economic fundamentals.'

CapitaLand plans to launch around 4,000 homes in China this year, from projects such as Paragon in Shanghai.

CapitaLand gained one cent to close at $3.72 yesterday, but many other developers ended the day lower. Keppel Land lost one cent to close at $4.72; Guoco- Land slipped by two cents to $2.75; Yanlord was three cents down at $1.68.

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