Properties more expensive in Jan-May By Jia Hepeng (China Business Weekly) Updated: 2004-06-28 15:10
Property prices in China rose 10.7 per cent, on average, during the year's
first five months, despite the central government's efforts to cool down
overheated sectors such as real estate.
"The rapid growth in housing prices reflects people's concern there will be a
decrease in supply and a rise in mortgage rates," said Jiang Jingliang, a senior
analyst with CB Richard Ellis' Beijing office.
"That is a side effect of the economic adjustment measures."
Jiang, and other experts, suggest the price hikes will taper off by year's
end.
National Bureau of Statistics (NBS) figures, released earlier this month,
indicate the average sales price of a residential home was 2,479 yuan
(US$299.50) per square metre between January and May. That was up 8.3 per cent
from the same period last year, NBS reported.
The average sales price of an office surged 22.5 per cent year-on-year, NBS
said.
It did not provide actual figures.
The rising property prices defy the government's ongoing economic adjustment,
which is aimed at controlling inflation and reducing fixed-asset investments.
In reality, the tighter lending policies, within the real estate sector, were
implemented in June 2003, nearly 10 months ahead of the central government's
restrictive policies within the steel, auto and aluminium sectors.
The People's Bank of China (PBOC), the nation's central bank, released tight
mortgage regulations last June.
Under that policy, mortgages for villas and luxury apartments, office
buildings and second homes were limited to finished housing. Also, the lending
rates were increased.
Commercial banks were also ordered not to lend money to real estate
developers who could not provide 30 per cent of the capital for their
developments.
PBOC's policy, in late April, was strengthened by a China Banking Regulatory
Commission circular, which required banks to be cautious when extending loans to
real estate developers.
An estimated 70 per cent of the capital for real estate developments in China
is raised through loans from banks.
As a result of the tighter lending regulations, many developers' cash flows
have been cut off.
The government has also imposed tighter land-management regulations.
Prior to 2002, land in most Chinese cities had been transferred privately. In
early 2002, the Ministry of Land and Resources (MLR) issued a circular that
required all land be transferred publicly, either through auction or public
tender.
At the beginning of this year, Beijing's municipal government released an
order that required all land be transferred through auction or public tender.
All non-agricultural land in China belongs to the State, but developers and
residents can purchase, and trade land-use rights to properties. Land-use rights
generally are for 70 years.
Samson K. T. Chan, a senior expert with Shanghai-based property investment
bank Stanley & Partner Co Ltd, said the clampdown on credit and stricter
land-management policies have caused some people to worry there will be a sharp
drop in property supplies, and that prices will rise substantially.
"Those fears come as housing consumption is close to taking off. The
restrictive measures are greatly stimulating demand," Chan told China Business
Weekly.
NBS' figures indicate 83.1 million square metres of property were sold in the
year's first five months. That was up 31 per cent from a year earlier.
In Beijing, most units of developments, considered to be in prime locations,
were sold within days of going on the block.
There was also an increase, nationwide, in the amount of unsold commercial
property between January and May. Some 97.06 million square metres remained
unsold, up 2.4 per cent from last year. But the growth rate, however, has
significantly decreased from two-digit figures in previous years.
Fewer new developments were launched in China's major cities -- including
Beijing, Shanghai and Guangzhou -- compared with last year.
The declining supply of economical housing helped push up the average
property price, Jiang said.
Chan predicted housing prices will begin to taper off in the year's second
half, as developers will speed up construction to cash in on the current high
prices.
"Land supplies are not really being reduced ... because land is currently
being held by many government-backed small developers," Jiang said.
"When those properties are placed in the market, the land-supply situation
will be eased."
