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China's home prices 'won't drop too much'

2010-03-18 17:06 BJT

China's property prices won't plunge this year, two of Hong Kong's biggest developers with operations on the mainland said yesterday, as the World Bank joined economists and hedge fund managers warning of a bubble.

"China's home prices won't drop too much, as the government can't allow prices to plunge because the real estate market is an important pillar of the economy," said Henry Cheng, managing director of New World Development Co and son of its billionaire founder Cheng Yu-tung.

Property prices in China rose 10.7 percent in February, the steepest gain in almost two years, even after banks raised mortgage rates. The surge -- along with a stock market rally, quickening economic growth and inflation -- led the World Bank to say China should raise interest rates to help contain the risk of a bubble, and sparked warnings of a potential crash from hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff.

China has banned banks from providing loans to developers found to be hoarding land or holding back sales of apartments to wait for higher prices, the China Securities Journal reported today, citing an unidentified person. The government has also raised banks' reserve requirements twice this year, and re-imposed a tax on home sales.

"The government's policies may create volatility in the market, but price drops would be limited this year as the real estate market fundamentals haven't changed," Wong Siu Kong, chief executive of Kerry Properties Ltd, said yesterday. The Hong Kong-based developer controlled by the family of Malaysian billionaire Robert Kuok yesterday posted a 45 percent gain in revenue from its China property unit for 2009.

New laws

On the same day that China's statistics bureau announced the February property price gain, the Ministry of Land and Resources said buyers must pay a 50 percent down payment on land acquisitions within a month of signing the contract. They must also pay a deposit, equal to 20 percent of the minimum price for the land, when taking part in auctions, the ministry said in a March 10 statement.

"If too many people lose their money on real estate, it will be bad for the economy; it's the same rationale in Hong Kong," New World's Cheng said at a briefing in Hong Kong yesterday. He didn't give a forecast for China home prices this year, and said Hong Kong residential values may rise 10 percent in 2010 as there isn't likely to be a big increase in supply.

The Chinese central government and government of the Hong Kong special administrative region have expressed concern about the gains in home prices. Hong Kong, a financial and trade hub of China, has pledged to supply more land and sell more than 4,000 subsidized homes after residential prices rose 5.2 percent this year, adding to 2009's 29 percent increase.

Bubble talk

China's Premier Wen Jiabao warned of "latent risk" to the nation's banks after record new lending last year and pledged to crack down on property speculation, in a speech to the country's annual parliamentary meeting in Beijing this month.

The nation's "massive monetary stimulus" risks triggering large asset-price increases, a housing bubble, and bad debts from the financing of local-government projects, the Washington-based World Bank said in a quarterly report on China released in Beijing. The group raised its economic growth forecast for this year to 9.5 percent from 9 percent in January.

China is in the midst of "the greatest bubble in history," James Rickards, former general counsel of hedge fund Long-Term Capital Management LP, said this week, warning it "is a bubble waiting to burst."

Harvard's Rogoff said Feb 23 that a debt-fueled bubble in China may trigger a regional recession within a decade, while Chanos, founder of New York-based Kynikos Associates Ltd., predicted a slump after excessive property investments.

Earnings from China

Property earnings and prices for New World's projects in China will be better in its second fiscal-half from the first as they were rising from a low base, Cheng said. Some sales would also be booked in the second half ending June 30, he said.

Cheng is also chairman of New World China Land Ltd, which is 71 percent owned by New World Development. New World China, which develops properties in the mainland, said yesterday net income more than doubled to HK$940 million ($121 million) in its first half ended Dec 31 as property sales jumped more than four times to 5.5 billion yuan ($806 million).

New World Development yesterday reported first-half net income of HK$5.35 billion, from a HK$992 million loss in the same period a year earlier. On an underlying basis which strips out revaluations, profit rose 83 percent to HK$1.86 billion. Its shares rose 1.7 percent to close at HK$15.54 yesterday, the highest since Jan 5.

Chairman Cheng Yu-tung is Hong Kong's fourth-richest person, according to Forbes Magazine rankings, with an estimated wealth of $6.8 billion.

Kerry, which yesterday said underlying income fell in 2009, against analysts' projections of a gain, dropped 2.9 percent, the most since Feb18, to HK$38.85 yesterday. The chairman of the company's parent, Robert Kuok, was ranked 33rd on Forbes Magazine's list this year, with a net worth of $14.5 billion.

Editor: Du Xiaodan | Source: China Daily