Friday 19 December 2008
Latest Real Estate Rescue Efforts Not Enough, Again
The Chinese government is likely to see little effect from its latest measures to promote housing consumption, as they have not bettered policies of local governments across the nation. The real estate market slump, having already lasted a year and a half, seems a safe bet to continue.
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Latest Real Estate Rescue Efforts Not Enough, Again
Niu Zhijing, Shanghai
18 December 2008
The Chinese government is likely to see little effect from its latest measures to promote housing consumption, as they have not bettered policies of local governments across the nation. The real estate market slump, having already lasted a year and a half, seems a safe bet to continue.
Several measures were approved at a meeting presided over by Premier Wen Jiabao on December 17, but no breakthrough was made, though some measures were taken to solve the housing problem of nearly 7.5 million low income urban families and 2.4 million residents living in shanty towns.
The favourable credit and tax policies for buyers of a “second apartment” approved this time have in fact been implemented by local governments and have had very limited or no effect on the market.
Researcher Yang Hongxu of E-house China Shanghai R&D Institute said no breakthrough had been made in the new policies compared with those in 2007 and the real estate industry has come away very disappointed.
It has been nearly two years since housing prices in China’s major cities began to dip. According to the November housing price index for 70 big and medium cities nationwide, year-on-year housing price growth has dropped to 0.2%, meaning currently China’s housing price is about equal to what it was in November last year.
Most potential house buyers are sitting and waiting, having reached a consensus that house prices will continue to decline, which is not music to the ears of real estate developers.
According to a People’s Bank of China investigation of urban depositors in the third quarter, those planning to purchase housing in the fourth quarter this year account for 13.3% of the total, a new low in the recent 9 years.
Price is still the biggest problem. Having watched them soar to atmospheric heights during the boom, consumers, who had been rushing in to buy, rather suddenly put on the brakes and now are waiting to see how far housing prices can fall before jumping back into the market. Developers, on the other hand, are being squeezed by a number of factors, among them land use rights gained at high prices in 2007 and a lack of return cash flow, not to mention the sweet memory of all that cash flowing in from sky-high prices, and have been exceedingly reluctant to drop them. Hence, the impasse.
Continuously tightening bank credit has become the latest straw on the industry’s back. The most recent National Bureau of Statistics’ figures show during January and November this year, year-on-year investment growth of China’s real estate development was 22.7%, dropping steeply by 1.9 percentage points over the growth in the first ten months.
According to figures from the Industrial Bank, from January to November year-on-year growth of loans granted by domestic commercial banks to the real estate industry was one percentage point lower than the growth during the first ten months, while year-on-year growth of funds raised by enterprises from January to November was 1.8 percentage point lower than the growth in the first ten months, revealing increasingly tight and inflexible fund supply.
With the coming of the lunar new year, banks will further tighten credit in an attempt to get back as many loans as possible before the New Year’s holiday. This Spring Festival will not be festive for developers.
Real estate investment and consumption is a driving force for the Chinese economy. Officials worry that exorbitant housing prices will trigger buyers’ anger, but at the same time are afraid of an economic collapse if prices slump too far.
The Chinese government has not this year publicly discussed how to save real estate developers. But this time Wen Jiabao declared directly that banks should support reasonable financing demands and grant more loans to the construction of low and medium-price housing and commercial housing of small- and medium-size, and provide financing and other relevant financial services to the M&A of powerful and credible developers.
Meanwhile, Premier Wen also required developers to positively meet the change of the market and promote sales of commercial housing. This may be his way of signalling developers to promote housing sales at proper instead of their earlier inflated prices.
Ren Zhiqiang, president of a Beijing-based real estate company, said that although the government has conditionally loosened credit limits for developers, it has not cancelled original limits issued by the China Banking Regulatory Commission. In the name of risk control, banks will still tend to grant most of their loans to key projects financially supported by the government. The banks’ unwillingness to lend to real estate firms means many in the industry will continue to face funding shortages.
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