2010-07-01 09:13

BEIJING - The impact of China's tightening measures on the property market looms large, with investors and economists increasingly apprehensive about an economic slowdown in the second half of this year.

Though the government's tightening policies have been successful in keeping realty prices under check, its ramifications have spilled over from the real economy to the capital market. The impact was felt the most when the capital market barometer plunged to a new low on Wednesday.

"It is fair to say that the home price control measures have been successful so far," said Sun Lijian, an economist at Fudan University in Shanghai. "The jump in home prices that was prevalent for most of last year has stopped. The policies have been a success, considering that there were many misgivings earlier," he said.

Home prices in 70 major cities rose by 12.4 percent year-on-year in May, 0.4 percentage points lower than in April, the first decline in 14 months.

"Realty sales have already dropped, and we expect this to be followed, with some delay, by a more moderate correction in prices and drop in property construction," said Wang Tao, head of China Economic Research at UBS Securities.

The drop in the growth of home prices, however, has also dampened investor sentiment. "(We) have paid the price for controlling home prices," said Xu Lianzhong, an official with the National Development and Reform Commission.

"Demand from real estate-related sectors has weakened which will have quite serious impact on future economic growth," he said.

The export sector, which is set to suffer from the European debt crisis, would contribute to the expected economic downturn, analysts said.

"From the third quarter, China's exports are set to weaken," said Zhu Baoliang, chief economist of the economic forecasting department of the State Information Center.

Zhu said the country's effort to reduce emissions and save energy would also drag on its economic growth, which would slow to 8-9 percent for the third and fourth quarters as a whole. China's growth reached 11.9 percent year-on-year in the first quarter, the fastest pace in almost three years.

"China's growth has peaked," Wang from UBS said. "We expect growth momentum to slow from the second quarter onwards, led by the slowdown in infrastructure and property investment, and in the third quarter, exports."

"The government needs to maintain its control of speculative investment in real estate to avoid reduced public confidence in its policies as a result of any home price rebound," said Dong Xian'an, chief economist of Industrial Securities.

However, Zhu said the slowdown would not be serious, as the government will increase investment in building low-cost homes for low-income families this year. "It would partially offset the impact of the tightening."