China Focus: Uneven property recovery tests Chinese policy makers

The recovery in China's property market helped support the economy in the first half, but diverse market situations in different parts of the country are making life difficult for policy makers.

After a year of decreases, the property market has begun to show signs of a turnaround. The recovery however, is uneven. Rapid price rises in some of the biggest cities fanned concerns of overheating and prompted a few local governments to cool sales by tightening property transfer restrictions. In smaller cities, a large number of unsold new properties continued to hit sales and prices forcing those local authorities to explore new ways to increase sales.

June's National Bureau of Statistics (NBS) housing market data showed annual house price increases in Shenzhen, Shanghai and Beijing of 47.4 percent, 33.7 percent and 22.3 percent, respectively. Of 70 monitored cities, 12 recorded new house prices lower than a year before.

Given excess inventories, which the NBS put at 714 million square meters in June, questions remain over whether the recovery can be sustained. Growth in both investment and sales have now slowed for the second month running.

Property investment in January-June rose 6.1 percent, down from the 7 percent increase in January-May. Growth of property sales by floor area fell to 27.9 percent from 33.2 percent

The recovery was mainly attributed to policy stimulus and changes in market expectations, but it remains fragile and fraught with uncertainty, according to a report released by the Chinese Academy of Social Sciences (CASS) on Monday.

After the fast growth in the first half of the year, a slowdown was widely expected. The report predicts house price growth to continue to slow in the second half and into 2017.

With market differentiation likely to intensify in the second half of 2016, policy makers will have to walk a fine line between sustaining the momentum of the recovery and avoiding risks.

The main theme for the second half remains reducing housing inventories, but the government will need different policies for different cities, said Zhao Chenxin of the National Development and Reform Commission, China's top economic planner.

Prosperous cities need to prevent significant price rises, while smaller ones need support in tackling oversupply, Zhao said.

To balance economic growth and reduce inventories, the CASS report suggested the government look to keep property investment growth within a range of 6-10 percent.

CASS researcher Ni Pengfei said the government should also strengthen risk control to avoid default by property developers.

The risk of capital chain breaks for property developers is particularly high in third and fourth-tier cities struggling with a persistent supply glut, Ni said. Endi