China Puts the Brakes on Property Sales, But Prices Continue to Defy Gravity

Asian markets closed lower Tuesday. In China, the Shanghai Composite Index fell 1.9 % to 2,648, and in Hong Kong the Hang Seng slid 1.4% to 20,147. Japan's Nikkei 225 Index lost 1.1%, ending the day at 10,411.

Despite the Chinese government's strict new regulations on property sales, home prices have continued to defy gravity, according to the National Bureau of Statistics website. Property prices in 70 cities across China climbed by a record 12.8%, regardless of a freeze on certain loans, limits on the number of properties that can be purchased by each family, a hike in required down payments, and more. But those statistics don't jibe with reports in China Daily saying that, "Those measures instantly chilled the property market in key cities, with transactions and prices falling." It reports that some statistics show that prices in some cities have fallen more than 20%. In Beijing, prices have fallen 18% and in Shanghai they've slid 12.2%.

One big worry is that developers could stop buying land and delay construction projects, with a knock-on effect of bringing other industries down as well. On Tuesday, developers closed lower. Poly Real Estate tumbled 2.7%, Gemdale slumped 2.6% and China Vanke slipped 0.7%.

China's continuing efforts to curb inflation, and the country's exponential growth in general, took their toll on the price of commodities, including copper and other natural resources. On Tuesday Shandong Jinling Mining, which extracts building essentials including copper, iron and cobalt from the earth, plunged 2.6%, Jiangxi Copper declined 1.7% and Shandong Nanshan Aluminum sank 1.6%. Yanzhou Coal mining slumped 1.9%. Meanwhile gold miners reaped gains with Shandong Gold Mining surging 3.4% and Zijin climbing 1.6%.

Worries about the Chinese economy sent jitters into semi-autonomous Hong Kong, where property developers closed lower. The situation wasn't helped by a disappointing result for a government land auction of prime real estate near the airport that sold for nearly a third less than estimated, signaling a cool breeze in the market. Guangzhou R&F Properties tumbled 4.7%, New World Development and Sino Land both slumped 2.6%, Sun Hung Kai tumbled 1.8%, Cheung Kong lost 1.6% and Henderson Land fell 1.5%. Evergrande, which develops boutique properties in China, many with manicured gardens, seaside promenades and decadent relaxation facilities, dropped 2.7% today. Last week Evergrande slashed prices 15% on 40 projects across the nation. But at the same time, shares of other exclusive property developers rose Tuesday. Soho China, which specializes in Beijing home offices based on a Japanese model, rallied 2% and Glorious Property surged 1.9%.

Among the Hang Seng's worst hit stocks, China Shenhua dropped 3.6%, Cosco Pacific fell 3.5%, Chalco slid 2.7% and HSBC was down 1.9%.

In Japan, banks led declines with Sumitomo Mitsui Financial falling 3.6%, Mizuho Financial Group sinking 2.3% and Mitsubishi UFJ dippping 1.7%. The regional Bank of Yokohama and Chiba Bank both suffered 2.3% falls.

Electronics and camera companies felt the heat as prices slid: Clarion, maker of car audio systems tumbled 4.6%, Olympus slumped 4.4%, Hitachi and Sharp both slid 3.3%, Pioneer slipped 2.8% and Panasonic lost 2.5%. Sony fell 1.5% in Japan, even after narrowing its anticipated net loss by 41%. In this kind of market, it's revealing that smaller losses are the best we can hope for.