Property market correction continues

New home prices fell in most of China's major cities in February as the market corrects in part due to government polices aimed to dispel speculation.

In February, new home prices dropped in 45 cities of the 70 major Chinese cities monitored by the National Bureau of Statistics (NBS), and 21 cities recorded no changes month-on-month.

Only four cities saw gains in new home prices in February, with rises all less than 0.1 percent, according to a statement on the NBS website.

The downward trend will not change, said Feng Lianlian, an analyst with Beijing-based Homelink Property, citing property developers' rising debt pressure and government's firm control stance.

But the figure is less gloomy than the previous month as in January none of the 70 cities reported increases in new home prices.

"The rises in the four cities should not be judged as proof that home prices are rebounding or the market is picking up," said Gu Yunchang, vice president of the China Real Estate Association.

Transaction volumes and prices rose in some cities late February. Buyers feared the government would soon loosen property controls, and at the same time were lured by big discounts, Gu said.

The central government stopped several local governments softening property controls last month, including Shanghai loosening its home-purchase limit and the eastern city of Wuhu taking a similar step, as these moves triggered policy-easing speculation.

The NBS said 27 cities saw new home price declines on a year-on-year basis in February, up from 15 in January.

Prices of resold homes ceased growing in 59 cities in February, compared with 65 cities in January.

In first-tier cities, including Beijing, Shanghai and Shenzhen, new home and resold home prices fell or were unchanged on both monthly and yearly bases in February.

Analysts said home prices will continue to drop and cash-strapped property developers will lower prices further to work off their overloaded inventories in the coming months.

Data with the Shanghai-based E-house China Research Development Institute show that the average transaction price for the country's commercial homes dropped 8.1 percent year-on-year in the first two months, in comparison of 6.9-percent rise for the entire of last year.

Meanwhile, the country's property developers had an inventory of 305.26 million square meters of residential floor space, not including low-income housing, for sales by the end of January, a sharp increase of 33.32 million square meters from 2011's end, according to Centaline Property.

"The market's housing inventory increased about 10 percent on the whole during the first two months," said Zhang Dawei, a chief analyst with the Centaline Property. The figure excludes low-income housing.

Zhang said inventories increased the most in second- and third-tier cities, while dropped slightly in first-tier cities as many big developers such as Poly Real Estate and China Merchants moved to lower prices to push sales.

"But the market still remains gloomy. Price is key to driving sales. Demand is great but people are very sensitive to price at the moment," Zhang said.

Figures from Guotai Junan Securities showed 175.8 billion yuan of real estate trust in total will mature this year, with 50.4 billion yuan due in July, the peak amount of the year.

The government started the latest efforts to exercise property controls in 2010, including withdrawing market liquidity, making it more difficult to obtain mortgages, and a ban on third-home purchases.

Premier Wen Jiabao said Wednesday after China's annual parliamentary session that the country's home prices remained "far from a reasonable level."

Wen prioritized the property control one of the most important tasks this year at a State Council executive meeting held Friday, vowing to unswervingly implement the government's control measures.

Mark Buddent, an analyst with London-based property analysts EC Harris, said that the downward trend of the home prices will "go into the second half of the year and until policies are altered."

Buddent also expected property tax trials to take place later this year in other cities besides Shanghai and Chongqing, the first two cities to introduce the tax on home owners.