China Real Estate: Wen Jiabao said the government will continue to curb home prices

26 December, 2010, 22:37. Posted by Zarathustra
Tags: Real Estate, Wen Jiabao

Local media in Hong Kong reported that the China Premier Wen Jiabao said they will continue to curb home prices after all previous measures seemed not effective enough.

Wen Jiabao is reported to have gone to a radio programme this morning and took questions from the internet. One of them asked Wen’s comment on the effectiveness of previous efforts in curbing home prices. Premier Wen said the government has taken various steps, but the implementations of them did not seem effective enough so far. He added that the primary goal next year will be to build 10 million public housing for low-income people. The government will continue to curb speculative activities by implementing stricter credit standard, and to manage land use to stop people from speculating on land prices increases.

I wonder if this can potentially be a wake up call for property developers. Despite tightness in the interbank liquidity, continuous talks on tightening and reserve requirement ratio increases, recent transactions in Beijing land market seemed to have picked up. For instance, Citic Group is buying a prime CBD commercial plot at a record 6.3 billion Yuan (or AV 18,000 Yuan per square meter), while Sun Hung Kai Properties from Hong Kong attempts to join force with Citic Group in developing the site. Cheung Kong was also reported to have bought 3 plots in China for 6 billion Yuan. This shows a certain degree of complacency among real estate developers that the government will not want the real estate market to collapse, and that the government wants to strike a balance between growth and tightening, which (to them) means that any tightening will not be too severe.

This latest comment from Wen and the Christmas surprise rate hike did not bode very well for real estate developers. I think the recent tightening moves by the government is an attempt to create a perception that the government is serious about inflation and asset bubbles. Going forward, I expect more tightening in the future months, which will likely to affect sentiments. But because the Chinese government will not want the economy to slow down too much, I suspect they would closely monitor the situation and may change course accordingly.

Of course, I maintain that the Chinese government will need a recession to stop inflation.