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Wednesday, January 6, 2010

China to monitor property market in 2010

BEIJING: China's central bank said on Wednesday, Jan 6 that it will pay particularly close attention to the property market in 2010 while managing inflationary expectations, according to a Reuters report,

The central bank's focus on housing prices makes clear its intention to consider asset markets in its formulation of monetary policy at a time when many analysts have warned that the country's property sector is approaching bubble territory.

The People's Bank of China, after a planning meeting for 2010, said it would maintain ample credit in the financial system but would encourage banks to lend more evenly, while strictly implementing credit policies in the housing sector.

"We should closely watch changes in the property market and strictly implement property credit policies to promote healthy development of the real estate sector," it said in a statement on its website.

About one-sixth of China's nearly 10 trillion yuan (US$1.5 trillion) in new loans last year flowed into the property sector.

Concerned that an asset bubble could stir social and economic instability, Beijing has vowed to combat overly fast price increases, although its moves to date, such as a less generous property tax break, have been relatively mild.


The central bank broke little new ground in laying out its other objectives for the new year, repeating many of its policy statements from the past few months, but it emphasised how determined it was to control bank lending after the record surge of credit last year.

"We will guide financial institutions to maintain a good rhythm of credit issuance and prevent abnormal swings in lending at month-end and quarter-end," it said.

The central bank also warned commercial banks of the dangers: "We should be more vigilant on credit risks, especially at a time when credit issuance is growing fast."

The government is expected to trim new lending to 7-8 trillion yuan next year and it has vowed to better guide lending flows, to ensure loans are not misused for property speculation or extended to industries already suffering from overcapacity.

The central bank also said that it had inflation in its sights, along with supporting economic growth.

"We should stabilise price levels and effectively manage inflation expectations," it said.

It reiterated long-standing wording about the yuan, saying it would maintain a stable exchange rate. It added that it wanted to promote multi-polarisation of the international monetary system and promised to expand yuan business, including bond issuance, in Hong Kong.

"We will keep the yuan exchange rate basically stable at a reasonable and balanced level," the statement said.

China has effectively re-pegged the yuan at 6.83 to the dollar since its exports dropped precipitately with the worsening of the global financial crisis in mid-2008.

A sustained recovery in exports, which have still been declining in year-on-year terms, is seen as a key precondition for Beijing to let the yuan resume the gradual path of appreciation that it followed from mid-2005 to mid-2008, when it rose about 21 percent.

By Reuters

China considering property tax: Morgan Stanley

SHANGHAI: China may impose a tax on commercial real estate in "selective regions" before applying a levy on residences in a bid to cool the property market, according to Morgan Stanley.

The nation's developers dropped the most in two weeks on concern the government will implement a nationwide tax on the value of a property for the first time. Speculation was fueled by a Shanghai Securities News report which said China plans to expand a trial on a real-estate tax, citing an unidentified person close to the State Administration of Taxation.

China is unlikely to impose such a levy on homes this year because it would likely have an "immediate negative impact" on the property market and the authorities are targeting a "soft landing," Jerry Lou, Hong Kong-based China strategist at Morgan Stanley, said in a note.

Chinese Premier Wen Jiabao said on December 27 the government will use taxes and interest rates to "stabilise" the property market. Prices climbed in November at the quickest pace since July 2008, adding to concern that unprecedented lending and inflows of money will inflate asset bubbles in the world's fastest-growing major economy. Calls to the State Administration of Taxation's press office weren't answered.
China won't introduce a property tax this year because the government wants to keep the real-estate market stable, Hingyin Lee, Colliers CRE plc's director of research and advisory for eastern China, said at a briefing yesterday.

Morgan Stanley's Lou reiterated his "underweight" rating on property and banking stocks, saying the China property market rally will end in 2010.

By Bloomberg

'Construction sector to peak by 4Q 2010'

The construction sector is expected to peak between the third and fourth quarter of this year on the anticipation of a full rollout of three mega projects, says HwangDBS Vickers Research.

The mega projects are the RM2 billion Low Cost Carrier Terminal, to be sited about two kilometres from the KL International Airport in Sepang, Pahang-selangor Water Transfer and Light Rail Transit (LRT) extensions.

The sector may show continuity in 2011, depending on the speed of the rollout of other mega projects like the new LRT lines and the pace of the new orderbook wins, it said.

"We expect further outperformance with the new leadership paving the way for more aggressive contract flows and prudent cost management.
"The foreign contract inflows are added catalysts. We expect Middle East countries and India to be the focus markets," it said in a statement.

The research house also views positively the participation of contractors from China in the mega projects and the spillover effects for the locals.

Private Finance Initiatives and public-private partnerships are expected to play a bigger role as the government had allocated RM7 billion for the purpose under the second stimulus package, it said.

It said the private sector would likely provide the bulk of the financing while the government made available basic infrastructures to ensure project viability.

To spur private sector involvement in economic corridor development, the government had set aside RM3.5 billion this year for infrastructure and basic amenities in the corridor regions, it added.

By Bernama