Soft spots emerging in property market data

Prices of pre-owned homes reflect 'change of thinking' by some buyers

Property prices continued to increase in February, but there were signs of cooling in the pre-owned home market, according to figures released on Tuesday by the National Bureau of Statistics.

Only four out of 70 cities had a month-on-month price decline last month, and nine were flat, the NBS said.

In January, prices fell month-on-month in six cities and were flat in two other cities.

On an annual basis, prices fell in only one city - Wen-zhou in Zhejiang province - which is also what happened in January.

Shanghai, where prices rose 18.7 percent, led the 70-city list, followed by Shenzhen and Guangzhou (15.9 percent in each case) and Beijing (15.5 percent).

Wenzhou recorded the largest year-on-year decline of 4.1 percent.

In the pre-owned home market, prices rose in 46 cities last month, with 15 recording a decline and nine staying flat. Compared with January, two more cities experienced declines.

"As a barometer of the market, the change in the pre-owned home market is a more direct reflection of the change in the thinking of potential buyers," said Guo Yi, an analyst with the Beijing-based Yahao Real Estate Selling & Consulting Solution Agency.

Analysts said the latest figures indicate that property bubbles in some second- and third-tier cities have been deflating.

"This is consistent with our forecast that house price inflation will moderate in 2014, due to continued credit tapering and supply adjustment," said Zhu Haibin, an economist with JPMorgan. "Regional differentiation will remain the main theme through this year."

In Beijing, the rate of price increases has fallen for four consecutive months, mainly because of the city's plan to put an extra 70,000 units of subsidized housing into the market.

The looming rise in the supply of subsidized housing, Guo said, has changed market expectations and drawn some potential buyers away from commercial projects.

In response, developers are cutting prices for projects featuring middle-class, owner-occupied units.

China Vanke Co Ltd, for instance, has set its selling price for a project along the capital's southern Fifth Ring Road at 21,680 yuan ($3,426) per square meter, well below market expectations of 26,000 yuan per sq m.

Given the weak national economic data for the start of the year, and significant regional differences in housing market developments, Zhu said that some property curbs may be eased in cities where prices are under pressure.

The curbs include purchase restrictions and tougher mortgage conditions.

"Such easing could happen at the discretion of city-level governments, but it's unlikely to evolve into a shift in the national policy," Zhu added.

According to Zhu, first-tier cities generally have supply shortages that reflect tougher curbs, tighter supply and stronger demand.

In contrast, supplies have increased faster in smaller cities. As demand tends to be sticky in smaller cities, it takes time to digest such increases, so prices could be under pressure in the coming years.

"Overall, we expect house prices to increase 10 percent in first-tier cities, five to 10 percent in second-tier cities and remain flat in third-tier cities in 2014," said Zhu.