Limits on Chinese Property Sales Push Shares Lower, Chinese Banks Feel the Heat

New villas in Beijing
New villas in Beijing

Shares in Asia slid lower Tuesday. In China the Shanghai Composite fell 1.2% and in Hong Kong the Hang Seng dipped 0.2%. The Tokyo Stock Exchange was closed today as part of Golden Week, a string of holidays that coincide with cherry blossom season and the arrival of spring.

In China, property companies tumbled in reaction to strict new policies regarding real estate purchases and lending for property investments. Banks now won't lend money for third homes, larger down payments are required and quick payment for land purchases is putting pressure on developers and speculators.

The mania for Chinese property has sent prices skyrocketing, with a nearly 12% increase in prices in cities this past March, as compared with a year ago. Beijing has now clamped down even further by limiting apartment purchases in the city to one per family. Xinhua News reported, beginning Friday "one family can only buy one new apartment in the city for the time being," according to a statement from the municipal government.

Today Poly Real Estate, which builds developments with catchy names like, "The Circle Pursuit of Perfections" and "Champagne Garden" plunged 7.5%, Gemdale plummeted 4.6% and China Vanke was down 4.5%.

Banks also retreated, hammered by a new increase in the required reserve ratio, the number that dictates how much money a bank must hold in cash. This is bad news for bank share prices, especially in conjunction with new limits on loans they can make for real estate purchases. Today China Merchants Bank tumbled 2.6%, Bank of Communications sank 2.1%, China Minsheng Banking Corp. slid 1.7%, Bank of China fell 1.4% and Industrial & Commercial Bank of China lost 1.1%.

Meanwhile, brokerage company Citic Securities nosedived the daily maximum of 10% upon resuming trading after a 12-day suspension. Citic is in talks to join forces with Credit Agricole SA, according to Bloomberg.

In Hong Kong, property shares dragged the Hang Seng lower. The territory's government is also imposing restrictions on property sales, introducing rules regarding the number of properties each buyer is permitted to purchase and raising taxes. After a 29% gain in 2009, home prices have already risen nearly 8% so far this year, reports Bloomberg. But even as prices climb, real estate company shares sank lower. Today Cheung Kong tumbled 2.1%, Sun Hung Kai fell 1.9%, Sino Land slid 1.7% and China Overseas declined 1%. Hang Lung was down 0.9% and Henderson Land lost 0.8%.

Mining companies closed lower in today's trading, with Yanzhou Coal Mining sliding 2.9%, Chalco, or Aluminum Corp. of China, dropping 2.3% and Zijin Mining down 0.7%. Power companies also lost value with China Resource Power falling 2.9% and China Coal Energy dipping 1.4%.

Among Hong Kong's winners, Li & Fung, supplier of Asian-made trendy clothes to Abercrombie & Fitch and Target, scored a 5.2% gain. Li & Fung's top clients are located in the U.S., while Esprit Holdings, which depends largely on European buyers, sank 0.5%. In Europe's tough times it seems buyers are holding off on all extra purchases, including that of reliable, lower-priced, Asian-made standbys like Esprit.

Originally published