| Real estate industry set to make soft landingBy Jiao Xiaoyang (China Daily)
 Updated: 2006-01-19 06:27
 
 Two years after people began to hear about China's economic "soft landing," 
now it has finally come about. At least, the buzz word has materialized in the 
real estate industry, China's most important engine for domestic spending. 
 Industry insiders and analysts have said the rise in property prices has 
slowed (with only a few exceptions), and a bubble burst scenario is unlikely for 
2006. 
 
 
 
 "The sector is falling 
within the government's targeted range for price stabilization," said Gu 
Yunchang, secretary-general of the China Real Estate Association.
 |  Hundreds of home 
 buyers queue up to buy house in a home project in downtown Shanghai last 
 March. [China Daily]
 |  Official data show that property prices in 70 cities slowed their rises last 
year in three consecutive months, from 6.4 per cent year on year in July to 6.3 
per cent in August, to 5.5 per cent in September. The statistics are not updated 
frequently. 
 According to Gu, the real estate industry will remain a key engine in China's 
economy as it generates both consumption and investment booms. The challenge 
ahead, he said, is to make it healthier. 
 The government introduced measures last April aimed at curbing rampant growth 
in the sector. Measures vary from city to city and include a capital gains tax, 
depending on the length of a buyer's holding period, and the tightening of land 
transactions and pre-completion sales. 
 The measures have sent prices down in some cities that once led the housing 
boom in the past couple of years, such as Shanghai and a few towns in the 
neighbouring Yangtze Delta. 
 "Despite the downturn in average statistics (in Shanghai), we notice there 
are still some projects, such as the Jing'an Four Seasons (a home project in 
downtown Shanghai), that are getting a good market response," said Michael Hart, 
China research chief in Shanghai for Jones Lang LaSalle, a leading real estate 
management and investment firm based in Chicago. 
 He said the demand in the Shanghai market is still high, considering the 
millions of affluent residents and investors who can be potential buyers once 
the local market stabilizes. 
 Prices in Beijing are rising moderately. In Shenzhen, the country's richest 
city in terms of per-capita income, prices have become red-hot in the past 
several months, with robust buying. 
 Although the government's efforts to cool down the market are paying off, 
some say continued growth is hardly to be bridled. 
 "To understand the trend of the market you need to put the average statistics 
aside and look into the specific areas," Beijing's real estate tycoon Pan Shiyi 
said. "As far as the Beijing market is concerned, there is no way the prices 
will go down." 
 Solid rise 
 Official statistics show that the transaction price of future delivery 
housing in Beijing climbed 24.7 per cent year-on-year from January to September 
in 2005. 
 But the surge mostly took place in the first quarter, and fluctuation became 
narrower after April. Home prices in September increased only 1.1 per cent from 
August. 
 "The government initiated some restrictive policies at the end of March, and 
that had some repercussions in the market, especially the high-end property," 
said Pan, who built his reputation by offering ultra-modern projects in downtown 
Beijing. 
 "But we see the market stabilized in September, and I think even in the worst 
scenario there will be no drops in price or transaction volume in the near 
term." 
 His confidence was based on the sound economic growth nationwide and a 
situation that demand for housing in the capital city outgrows the land 
available for development. 
 According to a recent survey of 2,736 non-native Beijingers by the leading 
real estate website www.focus.cn, 80.2 per cent of them, including some expats, 
said they had plans to buy property in Beijing for career development or 
investment concerns. 
 As the government scrapped the traditional free housing welfare in government 
departments and State businesses in the late 1990s, the only way to own a home 
in Chinese cities is to buy in the market. Adding to the real demand is a huge 
number of investors currently being squeezed out of the stagnant stock market, 
and who can hardly find other investment options. 
 Every year the dozens of universities based in Beijing generate more than 
150,000 graduates, with a majority of them staying in the capital city to work 
and live. Ministries and commissions of the central government recruit more than 
10,000 civil servants from all over the country every year, and the Beijing 
municipal government recruits several thousand, let alone migrants from other 
channels. 
 The Beijing Municipal Land and Resources Bureau said at a press conference in 
August that the new land available for commercial development was about 700 
hectares in the first half of 2005, compared with a demand for 4,000 hectares. 
 Moreover, the bureau announced that it would stop the supply of land for 
commercial development inside the Second Ring Road - the heart area of the 
800-year-old city, fuelling sentiments for further price growth. 
 The consensus of many local developers and home buyers is that Beijing's 
property boom will never ebb until 2008, as the upcoming Olympics is bringing 
the city a facelift of landscapes, a new crisscross subway network and enormous 
business opportunities that will all propel real property values up further. 
 Cooling off 
 Despite the buoyant outlook that is popular in Beijing and many other cities, 
some add a note of caution. 
 "Every industry has a cycle of ups and downs, and the real estate industry is 
no exception," said Yi Xianrong, a senior economist with the Institute of 
Banking and Financing under the Chinese Academy of Social Sciences. 
 "Once the price goes too far from the general public's purchase power, the 
situation will reverse and even the wealthiest developer won't be able to 
escape." 
 For more than five years, China's real estate investment has been growing 
three times as fast as the growth in the gross domestic product, resulting in 
soaring steel and cement prices, a shortage of electricity, and fears that the 
economy will become overheated. 
 Speculations have also gone unrestrained. In Shanghai, the country's 
financial centre, prices of many apartments doubled or tripled from 2003 to 
2004. Stories that someone mortgaged five or more flats or villas for 
speculation were common at that time when prices rose almost every day and 
buyers lined up before every new project. 
 "If real estate prices grow too fast, they will far exceed their real value, 
causing a bubble," the central bank said in an August 5 report last year. 
 The report said a bubble was already apparent in the second-hand and luxury 
housing markets last year in Shanghai, where average prices soared 19.1 per cent 
in the first quarter. 
 The Shanghai municipal government responded. The floor lending rate for 
housing loans of five years or more was raised 20 basis points in March to 5.51 
per cent. Also two major rules were changed, one requiring homeowners to pay off 
their mortgages before they sell a property and the other requiring buyers to 
come up with a down payment of 30 per cent rather than 20 per cent. 
 Moreover, the government planned land parcels to develop low-priced home 
projects totalling 20 million square metres in 2005, a move calculated to 
contain the sky-high prices. 
 Property prices in Shanghai have been falling for several consecutive months 
along with the number of transactions. According to the National Development and 
Reform Commission, although the average property price in the 70 cities it 
surveys rose 0.5 per cent from September to October last year, Shanghai was one 
of only five cities that posted a decline. The real situation in many local 
projects is believed to be worse, with some failing to sell even one flat since 
they were put on the market. 
 "When the market was in a boom every body thought the price would go up and 
up," said Michael Hart of Jones Lang LaSalle. "It would be positive for people 
in China to realize the real estate market does not go in one direction only." 
 He said the ups and downs of the Shanghai market can serve as a reminder that 
not only the local investors but also investors in other cities need to be more 
mature. 
 Back to earth 
 Still, there are a few flashpoints in the country's real estate sector. 
 In Shenzhen, home prices rose an average of 12.2 per cent year-on-year to 
nearly 7,000 yuan (US$854) per square metre in the nine months ending on 
September 30 last year. But the market may have had help: local media widely 
suspects that at least 30 per cent of the purchases were made by speculators 
from neighbouring Hong Kong and other cities on the mainland. 
 The situation recently prompted the city government to tighten rules on 
transactions, such as requiring developers to sell at once, rather than in 
batches, all residential units available in new projects if pre-sale consent for 
incomplete flats is granted. 
 But the general picture nationwide seems to be cooling. Although home prices 
remain considerably higher year-on-year, monthly growth is getting close to 
zero. 
 According to the National Bureau of Statistics, property investment growth 
has slowed considerably from 26.7 per cent in the first quarter, as the average 
growth in the January-to-September period turned out to be 22.2 per cent. 
 "There was some blind and reckless atmosphere in the market, and after the 
government's tightening up, the sentiment tended to be wait-and-see," said Gu of 
the China Real Estate Association. "But now the atmosphere is more rational, and 
the market is getting warm again." 
 But some experts aren't ready to take down the caution flags yet. 
 "The government cannot afford to let the real estate sector collapse because 
that would dampen the overall economic growth and may even trigger a financial 
crisis," said Su Jing, an analyst with the Beijing-based economic think tank 
Anbound. 
 Central bank statistics show loans for real estate development and mortgages 
in 2005 amounted to 2.68 trillion yuan (US$327 billion) through September, 14 
per cent of the country's total balance of loans. 
 "But neither can the government opt to ease prices by massively increasing 
the supply of developable land because that will ignite a new construction boom 
and an increase in material prices and, therefore, nullify all its efforts to 
avoid overheating," Su said, contending that Shanghai's developing of 20 million 
square metres of low-priced housing was just an "individual case." 
 "But now the market is so sensitive," Su said, "that the government will have 
to think twice before taking any further moves." 
 
 (China Daily 01/19/2006 page5)  
 
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