RRR cut unlikely to revive housing

Updated: 2011-12-02 09:42


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JINAN - A reserve requirement ratio (RRR) cut announced Wednesday will not be strong enough to stem the current decline in real estate prices, analysts said Thursday.

China's central bank announced Wednesday that it will lower banks' reserve requirement ratio (RRR) by 50 basis points for the first time in three years in order to replenish liquidity in the country's banking system as inflation eases.

The move, effective on Dec 5, is widely seen as a signal that the government is paying more attention to growth after easing inflationary pressures, although it is not yet known if the change will bring about a full-on move toward a looser monetary policy.

The Purchasing Managers' Index (PMI), a preliminary indicator of China's manufacturing activity, dropped to 49 percent in November from October's 50.4 percent, indicating contraction for the first time since February 2009, the China Federation of Logistics and Purchasing (CFLP) said Thursday.

The RRR cut, although good news, is not significant enough to help fund-strapped real estate developers, said Xu Chuangming, head of the market research department of Hopefluent Group Holdings Ltd, a real estate consulting firm.

Many developers are experiencing hard times, as both sales and prices have fallen in wake of a slew of government measures, including higher lending rates, purchasing limits and a ban on mortgage loans on third homes, that were aimed at taming the once red-hot sector.

"Many banks have shown unwillingness to lend to property developers. Even if they have more funds at hand, developers still find it hard to get loans," said Li Tiegang, head of the Property Economics Research Institute at Shandong University.

Property developers in many cities are turning to discounts to spur sales, even through the sales promotions have already provoked angry protests from homeowners who purchased their property before the discounts were put into place.

"Property developers should not count on a loosening monetary policy to ease their funding shortages. A further decline in property prices is expected," said Guo Songhai, head of the Real Estate Research Institute at the Shandong University of Finance and Economics.