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The recent housing price cut sent a chill through Shanghai’s housing market like the first cold spell of the looming winter. Longfor Properties Co. Ltd. cut the prices of its projects to 14,000 yuan($2,205) per square meter a few days ago from 18,000 yuan ($2,835) on the outskirts of Shanghai. Two other developers—China Overseas Land and Investment Ltd. and Greenland Group—also dropped their prices by nearly 30 percent.
Housing markets in big cities have all been mired in a downturn as a result of cooling measures. In addition to price drops, sales volume also showed signs of easing off.
During the traditional housing sales golden week—the National Day holiday(October 1-7), 16 of the nation’s 20 major cities saw year-on-year reductions in home sales, said China Index Academy (CIA), a domestic real estate research institute based in Beijing. In eight cities, the sales volume tumbled more than 50 percent. For example, Ningbo of Zhejiang Province saw a 78-percent drop and Shenzhen of Guangdong Province, 90 percent.
Lower real estate prices signal that government efforts to cool the market are working, said Qin Hong, Deputy Director of the Policy Research Center under the Ministry of Housing and Urban-Rural Development, at a recent forum.
Since September 2010, the Chinese Government has raised the down payments for buying a second home, shut the door completely for mortgages on third homes and increased interest rates for second-time homebuyers.
After that some first- and second-tier cities put a limit on the number of homes each family can buy. At the beginning of this year, Chongqing and Shanghai municipalities also kicked off the long-awaited property taxation trial.
“The government must take effective measures to consolidate the fruits of housing price control,” said Premier Wen Jiabao during a visit to southwest China’s Guangxi Zhuang Autonomous Region on October 21-22.
Meanwhile, a questionnaire conducted by the central bank in the third quarter shows that 75.6 percent of the respondents consider housing prices too high and unbearable, representing a record high since 2009, and 23.6 percent of the respondents still prefer real estate over other investment options.
Premier Wen stressed that China must continue efforts to control food and housing prices to ease soaring inflation and maintain economic development and social stability.
Effective control
The tightening policies on the housing market have successfully tamed the speculative demand for real estate, said Li Jing, JP Morgan Global Market Managing Director and Chairman of China.
Tightening policies have squeezed the space for speculative investment in the housing market. After the down payment for the first-home purchase increased to 30 percent and second-home purchase to 50 percent in September 2010, the down payment for second-home purchase increased to 60 percent in January 2011.
In addition to a higher down payment ratio, lending has become more and more difficult. Second-home buyers need to pay an extra 10 percent more than the benchmark interest rate and banks are not allowed to lend to third-home buyers.
Purchase limit policies stipulate that no loans should be provided to homebuyers without a local social security record dating back at least one year.
Higher down payment ratios and higher interest rates mean homebuyers pay a higher cost and make lower profits from speculative housing investments, said Hu.
After the National Day holiday(October 1-7), China Construction Bank(CCB), the country’s biggest housing lender, increased the interest rate by 10 percent higher than the benchmark rate, even for first-home buyers.
“CCB’s new move was a result of financial strain. Other banks may follow suit,”said Guo Tianyong, Director of the Research Center of China’s Banking Industry at the Central University of Finance and Economics.
“Amid the downturn of the housing market, banks are aware of the risks of home mortgage lending. The banks’ interest rate increase was reasonable,” said Yi Xianrong, a researcher with the Institute of Finance and Banking of the Chinese Academy of Social Sciences (CASS).
Yi also predicted more increases in mortgage rates in the future.
Meanwhile, the Central Government pledged earlier this year to build 10 million units of government-subsidized houses for low-income families in 2011 and 36 million units in total by 2015, as the country tightens the runaway property market.
With a large number of subsidized houses available, the supply and demand situation in China’s housing market will change, said Ba Susong, a researcher with the Development Research Center of the State Council.
The official data showed that nearly 3 million units of subsidized houses will be delivered by the end of this year and nearly 8 million units will be completed next year.
“Real estate developers are facing the toughest market and policy environment this year, and there are mounting pressures from inventory,” said Ba.
“The housing price plunge and shrinking sales volume have increased the housing inventory. As the domestic monetary environment tightens, developers are coming under mounting financial pressures. Some small developers may run out of cash and collapse,” said Nie Meisheng, Director of the China Real Estate Chamber of Commerce.
The completion of a large number of af-
fordable houses may be the last straw that breaks the developer’s back, said Ba. The real estate industry is going to reshuffle, he said.
No easing
Price drops in some large cities have aroused fresh concerns whether China will stick to its stringent control over the housing market.
Qin said that the government is not likely to ease real estate policies given the current global economic outlook.
Meanwhile, in contrast to the housing market slump in big cities, small cities still enjoy a housing buying spree.
Wang Jun, a 30-year-old migrant worker in Kunshan of Jiangsu Province, a small city near Shanghai, bought his first home less than one month after he arrived there in August, as since then there has been expectation that the purchase limit will be expanded to medium-sized and small cities like Kunshan.
“I made the decision to buy this house in two days. The market is crazy. If I didn’t buy it, other people would buy it. What is more, the price has surged quickly,” Wang said.
Wang was afraid that the purchase control policy might deprive him the chance to own his own house in the city. The purchase limit in some cities does not allow selling houses to residents living less than one year in the city and without a full-year social security payment.
The CIA data showed that 54 out of 100 cities saw a month-on-month increase in housing prices in September. Most of the 54 cities are second- and third-tier cities that have not implemented purchase limit policies.
In addition, housing demand for the long term will be strong, which can still prop up the housing market. According to Ha Jiming, Managing Director of Goldman Sachs Group’s Investment Banking Division, several factors exist to propel the strong demand.
The housing prices in major and medium-sized cities are still bearable. The household spending on mortgage loans in major and medium-sized cities now account for 39 percent of the buyers’ incomes, which is within the scope of healthy financial conditions.
China’s baby boom generation is now between 40 and 60 years old, and their children are reaching the marriageable age, which will boost the demand for housing.
Real estate is considered a viable tool to fight against inflation in China. Chinese people prefer to invest in housing to support their retirement.
The strong demand from urbanization will drive up the housing market. China’s urbanization rate is still low compared with developed countries, and the acceleration of urbanization will create higher demand for housing.
In the wake of the global financial crisis in 2008, China issued excessive money to prop up the economy. The excessive money has to be invested and housing is still a good choice, as seen in the soaring housing prices of the past two years.
Housing markets in big cities have all been mired in a downturn as a result of cooling measures. In addition to price drops, sales volume also showed signs of easing off.
During the traditional housing sales golden week—the National Day holiday(October 1-7), 16 of the nation’s 20 major cities saw year-on-year reductions in home sales, said China Index Academy (CIA), a domestic real estate research institute based in Beijing. In eight cities, the sales volume tumbled more than 50 percent. For example, Ningbo of Zhejiang Province saw a 78-percent drop and Shenzhen of Guangdong Province, 90 percent.
Lower real estate prices signal that government efforts to cool the market are working, said Qin Hong, Deputy Director of the Policy Research Center under the Ministry of Housing and Urban-Rural Development, at a recent forum.
Since September 2010, the Chinese Government has raised the down payments for buying a second home, shut the door completely for mortgages on third homes and increased interest rates for second-time homebuyers.
After that some first- and second-tier cities put a limit on the number of homes each family can buy. At the beginning of this year, Chongqing and Shanghai municipalities also kicked off the long-awaited property taxation trial.
“The government must take effective measures to consolidate the fruits of housing price control,” said Premier Wen Jiabao during a visit to southwest China’s Guangxi Zhuang Autonomous Region on October 21-22.
Meanwhile, a questionnaire conducted by the central bank in the third quarter shows that 75.6 percent of the respondents consider housing prices too high and unbearable, representing a record high since 2009, and 23.6 percent of the respondents still prefer real estate over other investment options.
Premier Wen stressed that China must continue efforts to control food and housing prices to ease soaring inflation and maintain economic development and social stability.
Effective control
The tightening policies on the housing market have successfully tamed the speculative demand for real estate, said Li Jing, JP Morgan Global Market Managing Director and Chairman of China.
Tightening policies have squeezed the space for speculative investment in the housing market. After the down payment for the first-home purchase increased to 30 percent and second-home purchase to 50 percent in September 2010, the down payment for second-home purchase increased to 60 percent in January 2011.
In addition to a higher down payment ratio, lending has become more and more difficult. Second-home buyers need to pay an extra 10 percent more than the benchmark interest rate and banks are not allowed to lend to third-home buyers.
Purchase limit policies stipulate that no loans should be provided to homebuyers without a local social security record dating back at least one year.
Higher down payment ratios and higher interest rates mean homebuyers pay a higher cost and make lower profits from speculative housing investments, said Hu.
After the National Day holiday(October 1-7), China Construction Bank(CCB), the country’s biggest housing lender, increased the interest rate by 10 percent higher than the benchmark rate, even for first-home buyers.
“CCB’s new move was a result of financial strain. Other banks may follow suit,”said Guo Tianyong, Director of the Research Center of China’s Banking Industry at the Central University of Finance and Economics.
“Amid the downturn of the housing market, banks are aware of the risks of home mortgage lending. The banks’ interest rate increase was reasonable,” said Yi Xianrong, a researcher with the Institute of Finance and Banking of the Chinese Academy of Social Sciences (CASS).
Yi also predicted more increases in mortgage rates in the future.
Meanwhile, the Central Government pledged earlier this year to build 10 million units of government-subsidized houses for low-income families in 2011 and 36 million units in total by 2015, as the country tightens the runaway property market.
With a large number of subsidized houses available, the supply and demand situation in China’s housing market will change, said Ba Susong, a researcher with the Development Research Center of the State Council.
The official data showed that nearly 3 million units of subsidized houses will be delivered by the end of this year and nearly 8 million units will be completed next year.
“Real estate developers are facing the toughest market and policy environment this year, and there are mounting pressures from inventory,” said Ba.
“The housing price plunge and shrinking sales volume have increased the housing inventory. As the domestic monetary environment tightens, developers are coming under mounting financial pressures. Some small developers may run out of cash and collapse,” said Nie Meisheng, Director of the China Real Estate Chamber of Commerce.
The completion of a large number of af-
fordable houses may be the last straw that breaks the developer’s back, said Ba. The real estate industry is going to reshuffle, he said.
No easing
Price drops in some large cities have aroused fresh concerns whether China will stick to its stringent control over the housing market.
Qin said that the government is not likely to ease real estate policies given the current global economic outlook.
Meanwhile, in contrast to the housing market slump in big cities, small cities still enjoy a housing buying spree.
Wang Jun, a 30-year-old migrant worker in Kunshan of Jiangsu Province, a small city near Shanghai, bought his first home less than one month after he arrived there in August, as since then there has been expectation that the purchase limit will be expanded to medium-sized and small cities like Kunshan.
“I made the decision to buy this house in two days. The market is crazy. If I didn’t buy it, other people would buy it. What is more, the price has surged quickly,” Wang said.
Wang was afraid that the purchase control policy might deprive him the chance to own his own house in the city. The purchase limit in some cities does not allow selling houses to residents living less than one year in the city and without a full-year social security payment.
The CIA data showed that 54 out of 100 cities saw a month-on-month increase in housing prices in September. Most of the 54 cities are second- and third-tier cities that have not implemented purchase limit policies.
In addition, housing demand for the long term will be strong, which can still prop up the housing market. According to Ha Jiming, Managing Director of Goldman Sachs Group’s Investment Banking Division, several factors exist to propel the strong demand.
The housing prices in major and medium-sized cities are still bearable. The household spending on mortgage loans in major and medium-sized cities now account for 39 percent of the buyers’ incomes, which is within the scope of healthy financial conditions.
China’s baby boom generation is now between 40 and 60 years old, and their children are reaching the marriageable age, which will boost the demand for housing.
Real estate is considered a viable tool to fight against inflation in China. Chinese people prefer to invest in housing to support their retirement.
The strong demand from urbanization will drive up the housing market. China’s urbanization rate is still low compared with developed countries, and the acceleration of urbanization will create higher demand for housing.
In the wake of the global financial crisis in 2008, China issued excessive money to prop up the economy. The excessive money has to be invested and housing is still a good choice, as seen in the soaring housing prices of the past two years.