China Real Estate Restrictions to Remain Despite Downturn in Data

China’s economic data for the first quarter of 2012 is now being reported and the results are not pretty. Perhaps the most outstanding number is the 8.1 percent GDP growth, which underperformed analyst estimates of 8.4 percent, and has led many observers to believe that a significant easing of restrictions is on the way.

And these observers are correct. China’s government is looking to loosen the reins on growth. Except in the real estate sector.

To review what happened in terms of GDP, gross domestic product in China expanded 8.1 percent from a year earlier compared to an 8.9 percent gain in the fourth quarter of 2011 — according to an announcement from the National Bureau of Statistics on Friday the 13th. (Couldn’t they have picked a different day to announce economic figures)? This marked the slowest economic expansion in China since the global financial crisis of 2008-09.

And much of this fall off in GDP can be attributed to the slowdown in the real estate sector.

These same figures from the Bureau of Statistics showed that during first quarter there was an 18 percent drop in home sales, with the value of homes sold declining RMB 709.9 billion from a year earlier.

As many analysts have pointed out, the government is already loosening credit controls in an attempt to reduce the chances of a hard landing in the economy. During March, China’s new RMB-denominated loans were the most in a year and money-supply growth unexpectedly accelerated. This surge in credit came after Premier Wen Jiabao cut banks’ required reserves and pledged to help private companies get access to funding.

In a press interview, Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB explained the moves as an attempt to reduce deceleration of the economy, “Policy makers have taken preemptive measures to ensure the growth slowdown doesn’t become excessive.”

However, before you start investing in more residential projects in Wulumuqi, please note that while the government is keen to prop up the economy, it is still determined to do so without easing any restrictions on real estate transactions.

Just the day before the Bureau of Statistics released its first quarter data, Premier Wen Jiabao reiterated that the government will maintain property curbs, and that it is confident that it can do so while ensuring the economy has enough investment to support growth. Speaking of the government’s stance on the real estate market, Fred Hu, a former chairman of Greater China for Goldman Sachs Group Inc told the media, “For now the government says it wants to maintain a hard line.”

It seems to be the government’s hope that it can encourage economic growth without allowing the real estate industry to resume its former role as one of the primary drivers of the economy. Perhaps the economic data for the second quarter will let us know if it can be successful in reaching this target.