China property sales leap 60% in first 7 months

Concern over asset bubbles brought on by record lending

(BEIJING) China’s property sales surged 60 per cent in the first seven months amid concern that record lending will stoke asset bubbles in the world’s fastest-growing major economy.

The gain in the value of sales, announced by the statistics bureau on its website yesterday, compares with a 53 per cent increase in the first half from a year earlier. Real estate investment accelerated to 11.6 per cent growth from 9.9 per cent, the agency said.

Home prices in 70 major cities gained one per cent in July from a year earlier, the biggest increase in nine months, the National Development and Reform Commission (NDRC) said yesterday in a separate statement.

Premier Wen Jiabao reiterated on Sunday that monetary policy will remain unchanged, after climbing asset prices triggered speculation that a tightening could be imminent.

‘Policymakers may be getting a bit edgy about asset bubbles developing,’ said David Cohen, an economist with Action Economics in Singapore. ‘They may use administrative measures to cool prices.’

Improved property sales are part of a broader recovery. China’s economic growth accelerated in the second quarter and the Shanghai Composite Index of stocks has climbed almost 80 per cent this year, powered by US$1.1 trillion of lending in the first six months. Home prices in the 70 cities began to rise in June after declining for the previous six months.

Property sales by area climbed 37 per cent in the first seven months from a year earlier, the statistics bureau said.

‘The overall increase that we’re seeing in property prices is still manageable, the government would be more concerned about the stock market,’ said Sherman Chan, an economist at Moody’s Economy.com in Sydney. ‘Higher confidence and more liquidity’ are causing price gains, she added.

Central bank and finance ministry officials said on Aug 7 that they will scrutinise gains in stock prices without capping new lending. The Financial Times reported the same day that the central bank had told the largest state- controlled lenders to slow growth in new loans, citing unidentified sources.

China Construction Bank Corp president Zhang Jianguo said last week that the bank will cut new lending by about 70 per cent in the second half to avert a surge in bad debt.

Property prices are being boosted by a lack of investment alternatives in China, Kenneth Tsang, Asia-Pacific head of research at LaSalle Investment Management, said on Aug 6.

‘It’s property or the stock market,’ he said. ‘Some of the government officials lately are increasingly concerned about the situation in China and there may be a bubble.’

In July, new home prices rose in 43 cities and fell in 26 from a year earlier, the NDRC said. The largest increase was a 6.4 per cent gain in the eastern city of Ningbo. Month-on-month, 63 cities posted increases in new home prices, with three reporting declines.

Across the 70 cities, home prices climbed 0.9 per cent from June, the fifth straight monthly again. — Bloomberg

Source: Business Times, 11 Aug 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.

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WHAT’S FUELLING BOOM

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

China’s property fever back after govt measures heat up prices

Beijing house prices rocket 27% from Jan to June as speculators return

(BEIJING) After getting on board China’s property boom only three months ago, Beijing property agent Li Zhiwei already has plans to use the profits from his new career to open a karaoke complex.

The 26-year-old is close to making his first pot of gold – a commission on a luxury new apartment near Beijing’s Sanlitun shopping and entertainment district that he is close to selling for two million yuan (S$421,000).

‘I’m a young man and I love challenges. Sales bring quick money,’ said Mr Li, who quit a lower-paying government job in his home city in the central province of Henan after six months of ‘boring work’.

While Mr Li will get 10,000 yuan from his first sale, he said top performers at his company could earn more than four times as much each month, a wage that would put him on track to start his karaoke and bar business in a few years.

Such ambitions may have seemed impossible last year when China’s property market slumped sharply, hit twice over by government efforts to rein in prices and the global economic crisis.
But China’s real estate fever is well and truly back.

Government stimulus measures and speculative investors have helped forge a surprising turnaround, with rocketing prices in some large cities sparking concerns of a new bubble.

‘China’s residential market has touched rock bottom and is now recovering at a faster pace than expected,’ said Alan Chiang, residential market head at property consultancy firm DTZ China.

In the Chinese capital, average house prices jumped 27 per cent from January to June, according to government data published in the state media.

Property prices across all major cities rose by 0.2 per cent in June from a year ago, government figures showed, ending falls since December, when the data posted the first decline since official records were published in mid-2005.

To lift the sector out of its slump, the government last year cut minimum deposits for first-time home buyers and slashed equity capital requirements on property investments.

It also lowered mortgage interest rates, while erasing stamp duty on all private home purchases and value-added tax for land on property sales.

The measures particularly helped average Chinese looking to buy a property as they improved general affordability, according to Hingyin Lee, head of research at Colliers International’s China division in Shanghai.

‘They gave a lift to … the mass market,’ he said.

But analysts said speculative money was also fuelling the rebound with the property market attracting hot money as a hedge against inflation.

Fears of inflation are rising, fanned by concerns about excess liquidity due to a record US$1.1 trillion of new loans in the first half, as Chinese banks followed government orders to pump-prime the economy.

‘Many people have entered the property market to hedge depreciation risks on expectations of inflation, creating investment and even speculation demand,’ said Yang Hongxu, an analyst at E-House China Research and Development Institute in Shanghai.

The frenzy seen in the Chinese market is in stark contrast with markets in the United States and other Western countries.

Prices of existing homes in the US – by far the largest segment of the US housing market – dropped by 15 per cent in June from a year before, the National Association of Realtors said. House prices in Britain also fell by 15 per cent year-on-year last month, according to mortgage giant Halifax.

‘China’s residential market is very different to its counterparts in the West,’ said Mr Chiang of DTZ China.

He said China’s massive population means there is still a long-term supply shortage. And Chinese
buyers have not been as hard hit by the financial crisis as they rely more on savings than mortgages to fund property purchases. — AFP

Source: Business Times, 28 July 2009

Phase 1 of GuocoLand’s Ascot Park all sold

THE first phase of Guoco- Land’s Ascot Park project in Nanjing, China has been fully sold, the group said yesterday.

Phase 1 of Ascot Park – comprising 594 units with a mix of 2 and 3-bedroom units in sizes ranging from 87 to 130 square metres – has been sold at an average price of 7,100 yuan (S$1,500) per sq m. Phase 2, comprising the remaining 518 units, will be launched in a few months.

The development caters to a niche market segment for units with bare finishes, enabling homebuyers to fit out their homes according to their preference.

Construction of Phase 1 is expected to be completed by the end of this year.

Located 14 kilometres from Nanjing city centre, the Balinese-themed development includes a man- made lake, a clubhouse with an extensive range of amenities, and a multi-purpose commercial centre with a selection of eateries and retail stores.

The project is on a 90,000 sq m site with a total gross floor area of about 240,000 sq m.
GuocoLand (China) group MD Violet Lee said: ‘The strong sales for Phase 1 affirm the demand for our niche products which provide a quality setting with lush landscaping for our homebuyers to fit out their individual units to their liking. We are confident that Phase 2, to be launched in the next few months, will also be well received.’

Source: Business Times, 28 July 2009

New Chinese home prices rise as loans soar

(SHANGHAI) New home prices in 36 medium- and large-sized Chinese cities rose 6.3 per cent last month from a year earlier as bank lending tripled in the first half.

The average price of new homes rose to 6,554 yuan (S$1,394) per square metre, the National Development and Reform Commission said on its website yesterday. New home prices last month rose 1.1 per cent from May, China’s top economic planning agency said.

The increase in new bank loans to 7.37 trillion yuan in the first half helped to spur demand for property and boosted prices, said Bohai Securities Co analyst Zhou Hu. Housing prices in 70 major Chinese cities rose in June for the first time in seven months, the government said on July 10.

‘China’s property market is recovering and prices should continue to rise in the third quarter,’ said Mr Zhou, who recommends buying shares of China Vanke Co and Poly Real Estate Group Co, the country’s biggest developers by market value.

Nationwide property sales last month rose 32 per cent by floor space and 53 per cent by value from a year earlier, the National Bureau of Statistics said on July 10. Investments in property development in the first half increased 9.9 per cent, the agency said.

Vanke, China’s biggest developer by market value, said on July 4 that its first-half property sales rose 28 per cent from a year earlier to 30.8 billion yuan. Poly Real Estate said its first-half sales rose 168 per cent to 21.1 billion yuan.

The China Banking Regulatory Commission on Sunday ordered lenders to raise reserves against non-performing loans. The regulator’s Shanghai branch also told the city’s lenders to obey mortgage rules that require down payments of no less than 40 per cent of the price. — Bloomberg

Source: Business Times, 21 July 2009

China’s property market bounces back

Shanghai – An investment unit of Australia’s biggest investment bank Macquarie Group last week sold a Shanghai luxury residential property that was put on the block more than a year ago, taking advantage of a rebound in China’s real estate market.

The 26-storey City Apartments in downtown Shanghai was sold to a small group of Chinese investors for about 300 million yuan (S$64 million), according to two people with direct knowledge of the deal. Macquarie bought the property four years ago for about 400 million yuan.

China’s housing sales have surged 53 per cent in the first five months of this year as an explosion in new loans stoked demand and investment, according to a survey commissioned by the statistics bureau and just published in the China Information News.

Prices are also turning up.

Urban property prices in 70 of China’s large- and medium-sized cities rose 0.2 per cent in June from a year earlier, the first increase in six months, according to the survey.

Rebounding prices could bode well for investment in the sector, but many analysts have raised concerns that the market is being supported by easy credit from China’s banks, and could develop into an asset bubble, the Wall Street Journal reported on Friday.

Property transactions have been increasing since February, fuelled by low interest rates and government measures to support the sector, including tax breaks on transactions and lower downpayment requirements.

The market rebound has enabled Macquarie and other foreign institutions to dispose of their China properties more quickly.

Morgan Stanley recently sold all the units at its high-end residential project Chateau Pinnacle in downtown Shanghai, local media reported.

‘Many foreign institutions are strained by the global credit squeeze and want to exit some of their China projects due to investment cycle,” said Mr Alex Wang, partner at US law firm Paul, Hastings, Janofsky & Walker.

‘Meanwhile, local investors, with easier access to borrowing and worried about potential inflation, have emerged as buyers for these properties.’

Of the 70 cities in the survey, all but five posted month-on-month gains in property prices in June, indicating a broad-based recovery.

But prices in China’s top-tier cities of Beijing, Shanghai, Shenzhen and Guangzhou, which soared before the downturn, fell last month from a year earlier. On a month-on-month basis, prices rose in all four cities.

Mr Julien Zhang, managing director of property consultancy Jones Lang LaSalle in Beijing, said on Thursday that China’s top-tier cities have larger gluts of unused commercial property due to over-investment in the boom years, while the situation in second-tier cities is better.

Prices of newly built residential properties fell 0.6 per cent last month from a year earlier, rebounding from the 1.3 per cent fall in May. Prices in the secondary market rose 2.2 per cent last month from a year earlier, after May’s 0.9 per cent rise.

Macquarie, which has been active in China’s residential property market for a decade, bought City Apartments in 2005, and put the 16,000 sq m residential development up for sale early last year as the bank shifted its focus towards commercial properties.

Macquarie had previously negotiated with four other potential buyers, including the real estate arm of Citic Capital, the investment banking unit of China’s biggest financial conglomerate Citic Group.

But the talks collapsed as the global financial crisis dampened demand and hit China’s property market last year.

Reuters

With additional information from the Wall Street Journal

Source: Sunday Times, 12 July 2009

New property bubbles rising in China: report

CHINA’S recent moves to ease curbs on the property sector have sent prices soaring recently, stoking fears that new property bubbles are forming, state media reported yesterday.

Residential property prices in Beijing’s Central Business District rose 6.5 per cent in the past week and demand for second-hand houses in some other areas is four times the supply, said the China Daily, citing brokerage Homelink.

It said that a land parcel in Beijing, which was withdrawn from a public tender due to a lack of bidders only 15 months ago, was auctioned off on Monday for a record US$585 million.

‘The bidders have gone irrational. A bubble in Beijing’s property market is definitely there,’ Pan Shiyi, one of the bidders that day and chairman of leading developer Soho China, said after the auction, according to the report.

In Shanghai, developers of the luxury Tomson Rivers apartments, priced at over US$14,600 per square metre, sold at least 10 units in June, the report said.

That compared with sales of only four units since the project was marketed four years ago, it added.

In the southern city of Guangzhou, the downtown housing price reached US$1,600 per square metre in May, close to the record high of US$1,700 in October 2007, the report said.

‘One thing we are concerned about is whether there is a new bubble being shaped,’ the report quoted Gu Yunchang, secretary general of the China Real Estate Association as saying. ‘The possibility of a bubble is pretty big.’

China’s house prices have been rising fast in recent years with the country’s economic boom.

The trend accelerated in 2006 and 2007, partly spurred by a growing stock market that prompted investors to place their windfalls in property.

As a result, the average home price in Beijing was 23 times a local family’s average income in 2007, compared with levels of four to six times average incomes internationally, state media reported.

Fearing the property market would suddenly collapse, Beijing launched a number of measures from September 2007 to curb speculation, including raising downpayments on second homes and banning loans to developers for land purchases.

The policies affected the industry severely, causing sales to slump and house prices to drop in dozens of major cities.

However, the financial crisis has forced authorities to relax the curbs, with local governments relying on preferential policies to boost demand.

Stamp tax on property purchases and value-added tax of land on property sales was lifted from November 2008 and minimum deposits for first-time home buyers was also slashed.

Source: Business Times, 4 July 2009

Modest rebound seen in China property

(HONG KONG) A rebound in China’s residential property market is set to continue but economic uncertainty means that sentiment will be cautious and prices nationwide will rise a modest 10 per cent between now and the end of 2010, a Reuters poll shows.

Property prices in bigger cities, where wealth levels and spending propensity are higher, will outperform second-tier cities with apartment prices in Shanghai, Shenzhen and Guangzhou set to rise by at least 10 per cent in the next 18 months.

The poll coincides with a Reuters global real estate summit.

Home sales in first and second-tier cities have jumped more than 20 per cent in the past three months, analysts said, after correcting in the second half of last year.

The market has been boosted by interest rate cuts and government measures such as stamp duty cuts and reduced mortgage down payment requirements, which are part of a broader economic stimulus plan.

‘Policy is aimed at persuading people that property prices are not going to fall,’ said Paul Cavey, China economist at Macquarie Securities here. ‘The government is using property market reflation to boost economic growth. So it looks more likely that property prices will rise.’

Prices for some new developments in Shenzhen and other big cities are up 20-30 per cent after being discounted by as much in the second half of last year after a property bubble burst.

However, average property prices in Chinese cities in May were up 0.6 per cent from April, but down 0.6 per cent from a year earlier, according to the National Development and Reform Commission.

The market is benefiting from excess liquidity in China but analysts said that a repeat of the property bubble in 2007 – which saw some Shanghai apartment prices soar 40-60 per cent through 2007 and early 2008 – is unlikely. At that time, the economy was growing by 13 per cent annually and incomes followed suit.

This year, the economy will be hard pressed to meet the government’s 8 per cent growth target – the World Bank forecasts 7.2 per cent growth – and that will make buyers cautious.

A faster-than-expected economic recovery could prompt the government to tighten monetary policy and repeal tax cuts and other incentives, while a slower economy would depress market confidence, analysts said.

‘Our immediate concern is that if prices go up too sharply before the economy recovers, we could see a policy reversal and that could slow things down,’ said Nicole Wong, property analyst at CLSA. ‘The government wants steady (property) price gains. It doesn’t want speculation.’ The property market has benefited from a surge in credit this year, as the government encouraged banks to lend and spur economic activity.

However, Banco Bilbao Vizcaya Argentaria (BBVA) said that prices nationwide are overvalued by 5-10 per cent. It forecasts that nationwide property prices could dip by up to 5 per cent between now and the end of 2010.

Yields in some sectors are not that attractive: in Shanghai, for example, gross yields on mid-market flats are only 3-4 per cent, analysts said.

Still, Shanghai and southern cities Shenzhen and Guangzhou are likely to outperform because prices have fallen more than in smaller cities and supply is not so strong. Land sales in Guangzhou and Shenzhen have been limited in the past few years and auctions in the past few months have drawn record bids as the market upturn has prompted developers to snap up plots.

Prices in second-tier cities will gain about 5 per cent over the next 18 months, compared with double-digit gains in first-tier cities although Beijing is likely to lag due to a supply overhang in the capital, analysts said.

In Wuhan, Tianjin and Shenyang, ample supply will keep a lid on prices. However, analysts said that prices in Chengdu in western Sichuan province and nearby Chongqing have lagged and should see double-digit gains by the end of 2010 as they catch up. — Reuters

Source: Business Times, 23 June 2009

No further fall seen in China property prices

(SHANGHAI) China’s property prices are unlikely to fall further as increased money supply and credit expansion inflate asset prices, BNP Paribas said, citing China Real Estate Chamber of Commerce president Nie Meisheng.

Residential prices will be the first to rebound, driven by urbanisation, followed by commercial property such as shopping centres, BNP Paribas wrote in a note yesterday, citing comments made by Ms Nie at a June 11 workshop organised by the bank.

China’s domestic banks extended a record 5.84 trillion yuan (S$1.24 trillion) of loans in the first five months of 2009, almost triple the value a year earlier. Zurich-based UBS AG forecasts new credit may reach eight trillion yuan in 2009.

Housing prices in 70 Chinese cities fell 1.1 per cent in April from a year earlier, the smallest drop in three months, according to data from the National Development and Reform Commission.

The central bank has cut interest rates five times since September, scrapped quotas that limited lending and pressed banks to support the government’s four trillion yuan stimulus programme. China’s property sales rose 45.3 per cent in the first five months to one trillion yuan from a year earlier, the statistics bureau said on June 10. That compares with a 19.5 per cent decline for all of 2008.

China’s government is unlikely to adopt a property tax within three years due to ‘several technical difficulties’, Ms Nie said, according to the BNP Paribas report.

A measure of property developers on the Shanghai Composite Index has more than doubled this year, leading gains among the five industry groups on the gauge. — Bloomberg

Source: Business Times, 18 June 2009

China urban property prices fall less sharply in May

The average annual property price decline in Chinese cities was less sharp in May than in April, pointing to stabilisation in the market.

Property prices in 70 cities fell by 0.6 per cent in May from a year earlier compared with a drop of 1.1 per cent in the 12 months to April, the National Development and Reform Commission, the economic planning agency, said on Wednesday.

On a monthly basis, prices were up 0.6 per cent in May, compared with a rise of 0.4 per cent in April, the commission said on its website.

Annual real estate investment growth quickened to 6.8 per cent in the first five months, up from 4.9 per cent in the January-April period, the National Bureau of Statistics said, suggesting a significant pickup in capital spending in the sector in May.

Property investment is a major driver of China’s overall urban fixed-asset spending. Beijing last week lowered the requirement on registered capital for developers to start new projects, a move that helped boost market confidence.

The statistics office also said property sales nationwide increased by 25.5 per cent in the first five months, up from an annual growth of 17.5 in the first four months, sustaining an upward trend that started at the beginning of this year.

Source: Business Times, 10 Jun 2009