Chinese government is successful at avoiding property bubble

It looks as if the Chinese government has been successful at avoiding a property bubble as prices during May fell in 23 out of the 70 cities surveyed, up from 16 in April.

Prices of existing homes in Beijing fell by 0.2% from April while property in Shanghai registered a 0.2% increase. Prices of new homes increased in 67 out of the 70 cities. The Chinese authorities are determined to prevent a bubble, and on June 14 the authorities ordered banks to hold more money as reserves, as it continues to fight inflation.

The government measures work better on existing homes as they restrain purchasing power, whereas developers of new properties are in no rush to slash prices, and are watching to see how government policies will develop.

The prices of new homes in the larger cities such as Beijing slowed last month, as much of the government's efforts have been focused on the largest urban areas. However a total of 29 cities posted increases of more than 5%, even though this is down from 33 cities in April.

Prices of new homes in Beijing have increased by 2.1% while Shanghai homes increased by 1.4%. The smaller cities such as Lanzhou, Mudanjiang and Urumqi all posted much larger gains of at least 7.7%.

Standard & Poor cut Chinese developers outlook from stable to negative on June 15, and it's likely that property sales will slow as the government policies really start to kick in. The credit rating company thinks that as prices may be 10% lower in the next 12 months.