Property prices set to rise as supply tightens

China's property prices will continue to rise in 2013, fueled by tighter supply, quickening urbanization and an improved economy, according to the latest report on the market.

Figures from REICO, the research institution jointly created by the China Real Estate Chamber of Commerce and the China Urban Reality Association Fund, suggest the country's housing inventory will be lower than that of 2012, due to a slide in new construction since the third quarter of 2011 and quickening sales last year.

New home building in Beijing was down 24.1 percent, and in Shanghai, 26.9 percent, year-on-year in 2012, according to REICO, meaning that shrinking supplies and robust sales have strengthened market expectations of further price hikes in 2013.

However, in some second- and third-tier cities such as Xining, Guiyang and Sanya, new construction was boosted by more than half last year, REICO said.

"The country's property prices will pick up steadily this year, but a strong rebound across the country is unlikely given rigorous measures still in force," said Liu Lin, one of the authors of the REICO report.

According to figures from the National Bureau of Statistics, property prices in the majority of China's 70 major cities have reversed their downward trend since November 2012.

Prices in 29 cities increased mildly in November, and in 44 cities in December, against just 14 cities in October, signaling that property prices have bottomed out, said the bureau.

Century 21st, the real estate agency, told China Daily that its sales of both new and pre-owned homes have been strengthening since May 2011, and the trend has continued into 2013, with sales of pre-owned homes in Beijing likely to reach a 24-month high in January.

The latest statistics from the Beijing housing authorities show that 17,723 pre-owned homes had been sold by Jan 27, a 3.5 percent rise on the same period in December, and that transactions in December had reached a 23-month high.

Zhang Lei, an analyst with Century 21st, said more individual buyers, expecting another price increase, had recently piled into the market, transforming what is traditionally considered a flat season into a "hot" one.

Yang Zhen, a 26-year-old company executive, for instance, said he's hoping to snap up a small apartment in the capital before returning home for Spring Festival.

"In April last year, one of my colleagues bought a one-bedroom apartment at a cost of around 1.3 million yuan ($208,700).

"But I couldn't find a similar one for any cost less than 1.8 million yuan now. I just couldn't wait anymore," he said.

Industry figures show that the average price for pre-owned homes in Beijing have hit 30,803 yuan per square meter in January, up 36 percent on a yearly basis.

"But if prices continue to go up greatly, transactions may drop," added Zhang from Century 21st.

Thomas Lam, director and head of research, greater China, at the international real estate firm Knight Frank, said he expected home sales in Beijing to fall in the first quarter of 2013 as Chinese New Year is traditionally a slow season.

"However, due to the overall market recovery in 2012, home prices could continue to grow moderately with steady investment returns," he added.

In a report released on Tuesday, Moody's Investors Service said that despite expecting a growth in the sales by most mainland property companies in the first quarter of 2013, it does not expect prices to increase sharply across the board in the near-to-medium term.

Among the 44 cities where prices have risen, none has recorded growth of more than 5 percent year-on-year, it reported.

"In addition, developers continue to focus on mass-market housing, which entails lower average selling prices, rather than on luxury homes. The increased proportion of mass-market housing will also restrict the increase in prices," Moody's said.

Kaven Tsang, a vice-president and senior analyst at Moody's, added that the credit profiles of many of its rated developers had improved because of their sales growth and better liquidity positions.

"Since November 2012, Moody's has taken nine positive rating actions and only one negative action in its rated portfolio," said Tsang.

"The number of companies with negative rating outlooks fell to 9 as of Jan 25, from 12 at end-2012 and the peak of 17 in May 2012."