BEIJING China's home prices rose at a slower pace in November as government lending curbs took out some heat in major cities, but a supply shortage in some places and sizable inventories elsewhere underscored challenges policymakers face trying to stabilize a polarized market.
Analysts say government tightening measures in recent months appeared to have dented speculative demand, a particularly welcome sign given underlying worries the overheated property market could crash and knock the economy hard.
New home prices increased 0.6 percent month-on-month in China's 70 major cities, slowing from October's 1.1 percent, according to Reuters calculations from data issued by the National Bureau of Statistics (NBS) on Monday.
"The slowdown is within our expectations. It showed the concerted efforts from the central government to local government have been quite effective in curbing prices," said Tang Li, a property analyst at investment bank NSBO.
Regulators have told banks to strengthen risk management around property loans. More restrictions on home purchases have been implemented to curb soaring prices.
The curbs seem to be working, with home sales and new property investment slowing significantly in November.
Despite the slowdown, however, market watchers are wary of a price rebound in the biggest cities due to a supply shortage that has fed persistently strong demand.
MORE CURBS FOR 2017?
Prices in first-tier cities such as Shenzhen, Shanghai and Beijing rose 27.9 percent, 29.0 percent and 26.4 percent, respectively, from a year earlier, but their monthly pace slowed significantly.
"It's likely there could be a rebound in first-tier cities and some second-tier cities in a few months," Tang said.
A surging real estate market has been a major driver of economic growth this year, which the government said has been running at 6.7 percent, only fractionally below the 2015 level.
But policymakers have become concerned that a property frenzy will fuel price bubbles, and market watchers say messages from a top economic work conference now under way hinted that current property curbs would continue or even intensify in 2017.
"What they are doing now is to squeeze as much bubble as possible in order to support the real economy. I think the consensus that they [policymakers] reached this time is that the previous destocking policy was ineffective," NSBO's Tang said.
Destocking was a top 2016 priority for the property market. However, the combination of record bank lending and relaxed housing policies has led to unexpected property overheating this year, while smaller cities still struggled with a large glut of homes.
NEW POLICY TONE
Top leaders said last Friday that curbing property speculation would be the new property policy tone for the year ahead, signaling a shift in policy focus.
NSBO's Tang said current curbs targeted at China's biggest cities would be kept in place for all of 2017.
"Chances are slim that the biggest cities would relax the curbs in 2017, because property restrictions are consistent with their policies on curbing population inflow," Tang said.
But Zhang Dawei, a Beijing-based senior analyst at property agency Centaline, estimated current curbs should last about six to nine more months before the economy risks losing steam in the third quarter of 2017.
Analysts are already expecting the property sector to be a drag on growth next year. The challenge for policymakers will be to ensure home ownership remains attractive even as they put in place curbs to temper a speculative rally.
China's economy will grow at around 6.5 percent year-on-year in 2017, from an expected 6.6-6.8 percent this year, government think tank China Academy of Social Sciences (CASS) said on Monday.
(Reporting by Beijing Monitoring Desk and Yawen Chen; Editing by Shri Navaratnam and Richard Borsuk)