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Saturday, 25 October 2008
Reviving mainland housing market may require more measures
The slide in the mainland property market will not end any time soon despite new policies to encourage home purchases, and Beijing may have to come up with more support, industry experts say.
Reviving mainland housing market may require more measures
Reuters 25 October 2008
The slide in the mainland property market will not end any time soon despite new policies to encourage home purchases, and Beijing may have to come up with more support, industry experts say.
The potential for the eight-year housing boom to fizzle out, or go bust like the stock market, is a major concern, with the mainland already on course for its first year of single-digit economic growth since 2002.
To breathe life back into the property sector, the government this week cut taxes, mortgage rates and down payments to make it easier for residents to buy their first homes.
The mainland’s housing market has faltered since late 2007 with transactions diving, forcing developers to cut prices in major cities such as Shenzhen by up to 40 per cent. Nationwide, prices are still rising but at a much slower pace than last year.
“The wait-and-see sentiment will not end in the near term,” said Edmund Ho, DTZ’s managing director for north China.
It is still too early to predict a recovery, said Chen Liang at BA Consulting, a real estate service company in Beijing. “A more important question is how the government, developers and service firms should work together to deal with the sluggish market.”
The risk of a property meltdown could severely affect growth in the world’s fourth-largest economy.
The mainland’s banking system is much more insulated from a housing market deterioration than the United States. Only 19 per cent of total bank loans are to the real estate sector compared with more than 50 per cent in the US, Standard Chartered analysts said in a note.
However, they said the impact on the overall economy could be substantial, with roughly 10 per cent of the mainland’s gross domestic product directly affected by the real estate sector and the potential indirect losses much bigger.
The weakening economy, which slowed to 9 per cent in the third quarter from 11.9 per cent for the whole of 2007, has damped income expectations and fuelled uncertainties about future property prices.
Even before the economy lost its sizzle, many thought housing prices were unreasonably high, unaffordable for most and a risky investment for those with money to spare.
Beijing’s support for the property sector marks an about-turn from the restraint it tried to impose last year, when the dominant concern was that the market was swelling into a bubble.
Although homebuyers were the main beneficiaries of the latest policy relaxation, the government also endorsed steps taken by more than a dozen cities such as Shanghai, Hangzhou and Nanjing, which included cuts or postponement of taxes and fees levied on developers.
This week’s measures mean “the government is reversing its anti-property stance adopted a year ago,” Andy Rothman, CLSA’s China macro strategist in Shanghai, wrote in a note to clients.
“The government is saying, (my words), ‘we encourage home buying and you should anticipate that property prices will start rising again’.”
Mr Rothman forecast the new measures could translate into a significant pick-up in sales by early next year and a rebound in prices.
Anticipating such gains, property stocks performed well the day after the new measures were announced. Shares in Vanke, the mainland’s largest residential developer, ended up more than 4 per cent on Thursday, while the Shanghai benchmark index fell 1.1 per cent.
But several analysts said the policy shift was small and that Beijing would need to introduce more measures, such as giving people greater freedom to buy second homes.
“If the new policy does not achieve any significant results, further measures may come out,” said Sun Jianping, an analyst at Guotai & Junan Securities in Shanghai.
Nothing will change overnight, said Li Yongchang, deputy head of Shanghai Pudong Development Bank’s Beijing branch.
“We will wait and see for the time being and take a cautious attitude,” he said, noting the US subprime meltdown offered a warning to China.
Annual growth in urban disposable income slowed to 7.5 per cent on average after inflation in the first three quarters of this year, down from 12.2 per cent in 2007.
The average Beijinger’s income was 21,989 yuan (HK$25,018) last year - not enough to buy even 2 square metres of a typical apartment within 7km of the city centre.
With such a striking disjuncture between income levels and property prices, most analysts say there is still room for housing prices to fall.
1 comment:
Reviving mainland housing market may require more measures
Reuters
25 October 2008
The slide in the mainland property market will not end any time soon despite new policies to encourage home purchases, and Beijing may have to come up with more support, industry experts say.
The potential for the eight-year housing boom to fizzle out, or go bust like the stock market, is a major concern, with the mainland already on course for its first year of single-digit economic growth since 2002.
To breathe life back into the property sector, the government this week cut taxes, mortgage rates and down payments to make it easier for residents to buy their first homes.
The mainland’s housing market has faltered since late 2007 with transactions diving, forcing developers to cut prices in major cities such as Shenzhen by up to 40 per cent. Nationwide, prices are still rising but at a much slower pace than last year.
“The wait-and-see sentiment will not end in the near term,” said Edmund Ho, DTZ’s managing director for north China.
It is still too early to predict a recovery, said Chen Liang at BA Consulting, a real estate service company in Beijing. “A more important question is how the government, developers and service firms should work together to deal with the sluggish market.”
The risk of a property meltdown could severely affect growth in the world’s fourth-largest economy.
The mainland’s banking system is much more insulated from a housing market deterioration than the United States. Only 19 per cent of total bank loans are to the real estate sector compared with more than 50 per cent in the US, Standard Chartered analysts said in a note.
However, they said the impact on the overall economy could be substantial, with roughly 10 per cent of the mainland’s gross domestic product directly affected by the real estate sector and the potential indirect losses much bigger.
The weakening economy, which slowed to 9 per cent in the third quarter from 11.9 per cent for the whole of 2007, has damped income expectations and fuelled uncertainties about future property prices.
Even before the economy lost its sizzle, many thought housing prices were unreasonably high, unaffordable for most and a risky investment for those with money to spare.
Beijing’s support for the property sector marks an about-turn from the restraint it tried to impose last year, when the dominant concern was that the market was swelling into a bubble.
Although homebuyers were the main beneficiaries of the latest policy relaxation, the government also endorsed steps taken by more than a dozen cities such as Shanghai, Hangzhou and Nanjing, which included cuts or postponement of taxes and fees levied on developers.
This week’s measures mean “the government is reversing its anti-property stance adopted a year ago,” Andy Rothman, CLSA’s China macro strategist in Shanghai, wrote in a note to clients.
“The government is saying, (my words), ‘we encourage home buying and you should anticipate that property prices will start rising again’.”
Mr Rothman forecast the new measures could translate into a significant pick-up in sales by early next year and a rebound in prices.
Anticipating such gains, property stocks performed well the day after the new measures were announced. Shares in Vanke, the mainland’s largest residential developer, ended up more than 4 per cent on Thursday, while the Shanghai benchmark index fell 1.1 per cent.
But several analysts said the policy shift was small and that Beijing would need to introduce more measures, such as giving people greater freedom to buy second homes.
“If the new policy does not achieve any significant results, further measures may come out,” said Sun Jianping, an analyst at Guotai & Junan Securities in Shanghai.
Nothing will change overnight, said Li Yongchang, deputy head of Shanghai Pudong Development Bank’s Beijing branch.
“We will wait and see for the time being and take a cautious attitude,” he said, noting the US subprime meltdown offered a warning to China.
Annual growth in urban disposable income slowed to 7.5 per cent on average after inflation in the first three quarters of this year, down from 12.2 per cent in 2007.
The average Beijinger’s income was 21,989 yuan (HK$25,018) last year - not enough to buy even 2 square metres of a typical apartment within 7km of the city centre.
With such a striking disjuncture between income levels and property prices, most analysts say there is still room for housing prices to fall.
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