Mounting liabilities reflect a variety of factors. In 2010, despite declaring war on house prices, the government was slow to clamp down on credit. By 2011, loans were in short supply but developers allowed other liabilities like supplier invoices to mount. Most recently, lending rebounded in the first quarter of 2012, listed developers borrowed 48 billion yuan, more than twice the figure for all of 2011.

Official data might also understate the banks’ exposure to property. Alongside bona fide developers, state-owned enterprises are sometimes tempted to dabble, either as developers or speculators. Some loans intended for building blast furnaces or shipping fleets actually end up as luxury apartments.

The banks are also exposed through the use of property as collateral. At Bank of China, for example, 39% of loans were secured on property and other immoveable assets at the end of 2011. The risk is that a sharper-than-expected price fall would hit developers’ ability to repay loans at the same time as the a decline in the value of property banks hold as collateral.

Housing sales in major Chinese cities surged over the recent long holiday weekend, prompting some analysts to forecast positive momentum for the sector in the coming months. Still, according to The China Daily, more than 60 percent of China’s mainland-listed property developers reported lower profits or losses in the first quarter as they cut prices to raise cash and reduce bloated inventories amid lackluster demand for their new projects. Foreign-based investment funds have taken advantage of the low prices and the eagerness of Chinese developers to get their hands on cash to service their high debt loads.

While the central government intends to continue its overall tightening policy and extend property taxes to more cities this year, the official Shanghai Securities Journal reported today that certain sector-boosting pilot programmes in Shanghai and Chongqing will also be expanded:

China has introduced a series of measures, including lending curbs, price controls and tax levies to cool its once-red hot property market. Chinese banks lent 242.7 billion yuan (S$47.3 billion) worth of property loans between January and March, down 54 per cent from a year earlier.

However, the government of Shanghai, under pressure to sustain economic growth, is considering measures to encourage property transactions and investment, the Shanghai Securities News reported in a separate article on Thursday.

The report gave no details of the measures, but said they were aimed at meeting the demand of low-income and first-home buyers and will not conflict with the central government’s approach to the property market.

Authorities in Jiangsu province’s Yangzhou, meanwhile, may draw the ire of the central government with a new policy introduced this week which offers incentives to homebuyers who purchase already-finished properties. From The China Daily:

Yangzhou homebuyers who purchase finished homes, commonly known as refined decorated houses, will receive cash rewards that vary in accordance with the size of the residences they buy, according to a government circular posted on the housing authorities’ official website.

A reward worth 0.6 percent of a purchase contract’s price will go to those who buy finished houses that occupy up to 90 square meters. For residences taking up from 90 to 120 square meters, the rewards will be worth 0.5 percent of a contract’s value and, for residences taking up 120 to 144 square meters, will be worth 0.4 percent of the value, according to the circular. The policy will take effect on July 1 and last a year.

It applies only to the price of a residence, not to the cost of any parking lots, garages or maintenance needs that come with it, the circular said.

The policy began to draw controversy after it had been posted on the housing authorities’ website on Tuesday morning. By the afternoon, it had been deleted, only to be posted again in the evening.

Some critics said the policy was local officials’ attempt to stimulate the depressed housing market amid the central government’s policy meant to restrict sales of residential properties.

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Data on 70 Chinese cities released by the National Bureau of Statistics and analyzed by The Wall Street Journal show average home prices declined by 0.17% in November compared with October, compared with a 0.13% decrease in October and a 0.01% increase in both September and August. Prices rose 2.3% on average in November from a year earlier, moderating from a 3% increase in October.

Prices of newly built homes in major cities such as Beijing, Shanghai, Shenzhen and Guangzhou—often described as China’s first-tier, or most developed, cities—were marginally lower compared with October, the statement said.

Analysts said that while the central government has shifted its priority to supporting economic growth from combating inflation, it remains set on controlling property prices. The People’s Bank of China cut banks’ reserve-requirement ratio by half a percentage point effective Dec. 5, helping ease liquidity in the country.

There are predictions that the prices will drop further due to the slowed economy. Business Week adds:

Chinese developers will face challenges over the next 12 to 18 months including slowing sales, tight bank credit and downward pressure on prices and profit margins, Moody’s Investors Services said in a Dec. 15 report.

The government may ease its property measures in the second half of next year if home prices in major cities include Beijing and Shanghai fall 20 percent from their 2011 peaks, according to Mizuho’s Shen. Shanghai’s new home prices gained 2.4 percent from a year earlier in November, and those in the capital city added 1.3 percent.

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“It has become ever clearer that the Chinese economy is moving to a soft landing,” Zhu said. “The Chinese economy today is really moving to an inflection point, moving to more services and capital-intensive economy.”

Zhu and Fan, speaking on the same APEC panel, said economic expansion would slow from the 9.1 percent growth in the third quarter of this year, with Fan saying sustainable growth in gross domestic product was about 8 percent. Their forecast for a soft landing is in contrast with some observers including hedge fund manager Jim Chanos, who has forecast since at least February 2010 that the property market will slump, saying that China is on a “treadmill to hell” because of its reliance on real estate for growth.

“We must be firmly committed to maintaining growth and promoting stability, with a special emphasis on ensuring strong growth in order to add momentum to the economic development in the Asia Pacific and beyond,” Hu said. China will “focus more on increasing imports while maintaining a stable level of exports.”

See also: Real Estate Prices Tumble as China Government Tries to Contain Bubble via CDT.

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A man holding a bucket was seen walking out of the office of Shenzhen Luosha Engineering Development Co, a real estate firm that will build a new project at the complex. The man poured something from the bucket into apartment windows, a witness surnamed Li told the website. Li later found the street was crawling with scorpions, the report said.

Police and residents spent the whole night capturing nearly 50 kilograms of scorpions.

All the apartments are scheduled to be demolished but home owners haven’t signed compensation deals yet, the report said.

Residents told the newspaper they suspect the developer freed the scorpions to drive them out as some buildings have already been torn down due to a tight schedule.

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The trial tax, the closest thing yet to the style of tax levied annually on residential property in countries like the U.S., will be applied differently in Chongqing and Shanghai, apparently to see which one works best, before being rolled out across the country.

The tax comes after the country’s cabinet on Wednesday raised the minimum down payment on second-home purchases to 60% from 50%, and imposed limits on home purchases as part of efforts to cool the overheated real-estate sector and rein in inflation.

“The tax, by itself, is not very harsh. But together with the new limits on home purchases and higher down payment for second homes, it shows the government is determined to rein in speculation,” said Remy Chan, managing director of CBD Commercial Investment Management, a 3 billion yuan ($456 billion) private-equity property fund in Shanghai.

The tax, which comes into effect Friday, “can guide residents toward more rational housing consumption,” the Ministry of Finance said Thursday in a statement issued jointly with the Ministry of Housing and Urban-Rural Development and the State Administration of Taxation.

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All around the nation, giant state-owned oil, chemical, military, telecom and highway groups are bidding up prices on sprawling plots of land for big real estate projects unrelated to their core businesses.

“These are the ones that have the money to buy the land,” says Prof. Deng Yongheng at the National University in Singapore. “Because in China, it’s the government that controls the money supply and the spending.”

By driving up property prices, the state-owned companies, which are ultimately controlled by the national government, are working at cross-purposes with the central government’s effort to keep China’s real estate boom from becoming a debt-driven speculative bubble — like the one that devastated Western financial markets when it burst two years ago.

Land records show that 82 percent of land auctions in Beijing this year have been won by big state-owned companies outbidding private developers — up from 59 percent in 2008.

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New measures introduced in the past few weeks restrict mortgage lending, increase land supply and stop developers from hoarding apartments to push up prices.

In the biggest cities like Beijing and Shanghai, prices have risen so much that for many people most properties are now unaffordable.

But analysts say house prices are unlikely to fall this year, despite the tightening measures adopted by the government.

Last week the annual report on the state of the real estate industry by the Chinese Academy of Social Sciences warned that rocketing house prices had become the most important obstacle to that sector’s healthy development.

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China is drawing up a new curb on property developers as part of a host of measures to cool the country’s red-hot property market, the state-controlled China Securities Journal reported Thursday.

The plan would ban developers from investing revenue from pre-sales of uncompleted property developments in new projects, the journal said, citing an unnamed source close to the Ministry of Housing and Urban-Rural Development.

Developers will be required to deposit the income from such advance sales of uncompleted projects into a special account monitored by the government and will only be able to use the money to pay contractors.

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China’s real estate rush, once confined to a handful of leading cities, has spilled into the hinterlands with a ferocity reminiscent of American expansion into exurbs like the Inland Empire.

In a country that economists say is treading dangerously close to a full-blown property bubble, Hefei represents more evidence of China’s headlong embrace of housing to power economic growth.

“The situation in Hefei is a symbol of the craziness in China’s real estate market,” said Cao Jianhai, a professor of economics at the Chinese Academy of Social Sciences, a government think tank. “Prices in second- and third-tier cities are increasing more dramatically than in the first tier. It’s very dangerous and it puts local banks at risk.”

With land increasingly difficult to secure in the most coveted cities, developers are turning to lesser-known destinations in China. Local officials eager to generate revenue through leases and development fees, and to meet growth targets set by the central government, are quick to grant permits.

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China on Tuesday tightened rules on advance sales of new property developments, in the third move of its kind in less than a week aimed at curbing rampant real estate speculation.

The Ministry of Housing and Urban-Rural Development said in a notice on its website that developers cannot receive down payments for unfinished properties without first obtaining government approval.

Once the government gives developers the green light to pre-sell properties, they must publish the prices of each unit in the development within 10 days of receiving approval, the ministry said.

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