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China unlikely to see a sharp correction in property market

February 26, 2014

BEIJING (Reuters) – China’s property market is likely to see at most a moderate correction in prices in some small cities this year, according to a Reuters straw poll of 13 industry watchers this week, with the chance of a sharp fall in prices nationwide very slim.

A series of indications of a slowdown in the property market this week, beginning with official data and reports of banks cutting lending and developers cutting some unit prices, has spooked financial markets and raised concerns over the health of tone of the economy’s main drivers.

Analysts in the poll said the market had overreacted to the news as China’s ongoing drive to have more people move to its cities, plus generally strong housing demand in wealthy cities, could put a floor on the downside risk.

“We did see some corrections from certain development projects in some overpriced cities, but it doesn’t tell the entire story of China,” said Zhang Xiaoduan, head of South and West China Research at property firm DTZ.

“The pressure for price correction is not particularly high for major developers thanks to strong sales performance from last year, which gives them a better liquidity position,” Zhang added.

The poll asked 13 market participants ranging from analysts to developers to sales staff about the risk of a correction in prices this year.

Most saw a fall of up to 10 percent in prices in some smaller cities as the worst-case scenario, with no correction seen in large cities. Any falls would be largely due to oversupply.

“We think market correction will only occur in some cities with high unsold home inventories, such as Hangzhou, Shenyang, Changzhou and Fuzhou,” said Liu Yuan, a head of research at property consultancy Centaline in Shanghai.

Most respondents thought substantial home price cuts are unlikely to spread to the top mega cities such as Beijing, Shanghai and Guangzhou, where strong demand and short supply have pushed up prices rapidly in the past year.

“For cities like Shanghai, it is not possible for the price to fluctuate significantly in the predictable future … since land prices are climbing,” said a salesman who is marketing a housing development in Shanghai.

“It’s just like you can’t expect the bread price to fall when the price of flour is increasing,” he added.

(Reporting By Xiaoyi Shao in Beijing, Yimou Lee in Hong Kong and the Shanghai Newsroom; editing by Jonathan Standing)