Monday, August 3, 2009

Caught offguard by property rebound

First-time buyers left in the lurch as boom spreads to China's 2nd-tier cities

BEIJING: When China's property market slumped late last year, Ms Zhao Jun, 33, rejoiced.

The department manager of a technology company in Beijing had long been searching in vain for an affordable apartment.

'We thought that the time had finally come to buy a home that met our budget of 5,000 yuan (S$1,000) per sq m,' said the mother of a one-year-old daughter.

She had been paying rent of 4,000 yuan a month - 40 per cent of her salary - and wanted a place to call her own.

But little did she expect that home prices in Beijing's fourth ring, a location she favoured, would fall to 16,000 yuan per sq m and no further.

And then within a few months, prices abruptly shot up again - way beyond her reach - to well over 20,000 yuan per sq m.

This has forced Ms Zhao to settle for an apartment much further away in the eastern suburbs. 'Im afraid that at the rate the market is rising, if I don't buy now, property will be even more expensive in future,' she said late last month.

Indeed, a sudden revival of real estate fever across China would turn home prices from bust to boom, leaving thousands of first-time home-buyers in the lurch.

In Beijing, average house prices in the capital leapt 27 per cent from January to June, while Shanghai has seen a 78-per-cent spike in residential sales, and the climb has continued since.

But it is not just residents in top-tier cities who are hit. Those in up-and-coming ones such as Tianjin have also been hit as analysts predict these 'second-tier cities' will grow even faster than first- tier ones - and prices will be swept along upwards. In Tianjin, property prices rose 2 per cent in May against the previous month on the back of a 19 per cent jump in daily transaction volumes.

Even so, 90 per cent of Tianjin home-seekers in a recent online poll by property portal House Focus are already complaining that prices are way beyond what they can afford.

To these people, it looks like the government's measures to turn around the property sector - which had slumped a year ago after Beijing took steps to curb speculation and overheating - have worked all too well.

As China's economy entered rougher waters late last year, Beijing moved to revive the property sector - a key engine of growth. It cut minimum deposits and banks' mortgage rates for first-time home-buyers. And it also slashed the minimum proportion of capital funding that a developer is required to hold in order to build new projects.

This has sparked a rush among China's developers back into the market, especially in second-tier cities.

They went on buying sprees for land at record prices, prompting Mr Pan Shiyi, chief of Chinese developer SOHO to declare to local media last month: 'The bidders have gone irrational.'

Developers have poured 1.45 trillion yuan into property development in the first half of this year, up almost 10 per cent compared with the same period a year ago, according to the National Bureau of Statistics. This has pushed up demand and prices for existing units, as buyers rush in, expecting developers to raise prices soon in a fast-recovering market.

But another, perhaps even more potent, factor in what analysts warn may be a property market bubble is hot money flows. These oozed from the 7.4 trillion yuan of new bank loans released as part of Beijing's stimulus package in the first half of the year.

Some 30 per cent of the loans meant for projects under the stimulus plan may have been channelled into real estate, Mr Wei Jianing, a senior researcher at the State Council Development and Research Centre, told state media recently.

The aggregate home prices across major Chinese cities had in fact, only reversed last month, correcting a five- month decline and rising 0.2 per cent in June, compared with a year ago, official statistics showed. But analysts say this momentum will only grow faster.

In particular, second-tier cities such as Tianjin, Chongqing, Shenyang and Chengdu are seeing a strong recovery in home prices as their economies pick up pace, spurred by their governments' stimulus measures, noted Mr Carlby Xie of Colliers International in Beijing.

'These cities are experiencing a very exciting period of property development boom - not only in the residential but also the commercial sector,' he said.

Large-scale developers which had previously concentrated on top-tier cities are starting to venture into second-tier ones where profit margins may be higher.

Meanwhile, demand is growing among increasingly affluent urban residents for new, top-quality housing, added Mr Xie.

This trend is, however, bad news for Mr Zhou Jinhai, 27, a hotel manager in Tianjin who hopes to buy a small apartment before proposing to his girlfriend.

'Growth in second-tier cities and property markets is good - but not when genuine first-time buyers like me have to make sacrifices and bear the cost of it,' he lamented.


Beijing's move to revive the property sector has sparked a rush among China's developers back into the market, especially in cities such as Tianjin, Chongqing, Shenyang and Chengdu.

Demand and prices for existing units have been pushed up as buyers rush in. Developers are expected to raise prices soon.

Hot money flows from the 7.4 trillion yuan (S$1.6 trillion) of new bank loans released as part of Beijing's stimulus package in the first half of the year.

Source: Straits Times, 3 Aug 2009

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