High CPI may prompt rush for property
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China's high consumer price index (CPI) in October may prompt people to buy property as a hedge against inflation risks, thus preventing a decline in prices despite government measures to soak up liquidity and curb real estate price growth, industry analysts said.
An increase in the cost of foodstuffs sent CPI, a key gauge of inflation, to a 25-month high of 4.4 percent last month, the National Bureau of Statistics said on Thursday. The growth rate was 0.8 percentage points above September's figure.
"Though the central bank has taken measures to absorb liquidity and there might be more interest rate hikes in the pipeline, the urge to purchase property is even stronger given the soaring inflation pressure," said Su Xuejing, a senior analyst with Changjiang Securities.
The People's Bank of China on Wednesday said it will raise the required reserve ratio for all lenders by 50 basis points, its fourth increase this year, amid rising liquidity which has been caused in part by quantitative easing in the United States.
"Such measures, in fact, have a limited impact on property developers, as most of them still have a smooth cash flow due to robust sales in the first four months and September," Su said.
Hong Kong-listed Longfor Properties, for instance, realized its annual sales target of 24.8 billion yuan ($3.7 billion) in early November, a month earlier than anticipated. Guangzhou-based Evergrande Real Estate Group reported sales of 41.2 billion yuan in the first 10 months, beating its target of 40 billion yuan for 2010.
Qin Xiaomei, chief researcher at the property services group JLL Beijing, said prices will probably stabilize instead of dropping at the end of the year.
"Given the higher-than-expected inflation, we are expecting a higher transaction rebound in the high-end residential sector than in the previous quarter," said Qin.
According to Beijing Real Estate Transaction website, 263 villas - high-end dwellings - were sold last month, with an average unit price of 27,323 yuan per square meter, the same cost as last year. But sales of regular residential buildings were down 45 percent in October, according to Yahao Property, a real estate brokerage company.
Meanwhile, middle and high-end villas, with a total value of more than 6 million yuan, accounted for 64.1 percent of high-end market transactions. Vantone Tianzhu Legacy Homes, a villa project with a unit price ranging from 8.5 million to 10 million yuan, sold eight units in the first three weeks of October, with a total sales value close to 70 million yuan.
"Given limited investment channels and stronger expectations for inflation pressure, quite a number of people prefer high-end properties as their primary choice to hedge inflation risks, because of the limited supply," said Ting Tai, project manager of Vantone Tianzhu Legacy Homes.
