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Sunday, 24 July 2011
Mainland home prices heading for a fall
Despite enticing smiles from attractive sales agents beckoning visitors to an exhibition for a new property launch, the cavernous hall in suburban Beijing remained virtually empty for hours at a stretch.
Despite enticing smiles from attractive sales agents beckoning visitors to an exhibition for a new property launch, the cavernous hall in suburban Beijing remained virtually empty for hours at a stretch.
In contrast to the blistering heat outside, the languid sales campaign inside the air-conditioned hall reflected a chill that is spreading across the mainland real estate market.
For almost 20 months, the government has been trying to calm down property prices without destabilising the economy, resulting in higher mortgage costs and a growing inventory of unsold homes.
“We will not cut prices in the next six months,” boldly proclaims Cui Fan, a sales agent from Jingxu Real Estate Development, which lies more than an hour from central Beijing and has flats on sale at 19,000 yuan (HK$23,000) per square metre.
Such bravado was rewarded in the past when the property market seemed to go in one direction only. However, many analysts are starting to question that assumption, along with increasing numbers of would-be homebuyers who are perched on the sidelines, hoping prices will fall. “Most developers agree that cutting prices is the trend. They just need to decide the right extent and catch the best timing,” said Sunny Liu, a director at the China Index Academy, a real estate research institute.
Six of eight property analysts polled by Reuters in the past two weeks expect prices to fall during the rest of the year. Five of them expect a drop of less than 10 per cent, with only one predicting larger declines up to 20 per cent. The other two forecast prices could actually rise further, by another 5 per cent.
A sharp price slump is seen as unlikely given overall demand is still strong, fuelled by massive migration from rural areas to cities, and bank deposit rates remain relatively low.
Banks’ own stress tests in 2010 showed they could withstand a fall in home prices of up to 50 per cent, claiming it would result in a rise in non-performing loan ratios of a few percentage points only. Some economists, however, are sceptical that those tests were rigorous enough.
The real estate market has consistently defied earlier forecasts of a crash or even a pullback. What’s different this time around, some analysts say, is that a string of negative factors is finally coming together that could stall or reverse the relentless climb in home prices.
As Beijing gradually turns the monetary tightening screws, some banks have stopped issuing mortgages altogether, preferring lending that can fetch much higher interest rates.
On top of that, three official interest rate rises so far this year have pushed mortgage rates to a three-year high of more than 7 per cent.
And then, last week, Beijing announced the extension of harsh buying restrictions to dozens of smaller cities.
“The property market correction will deepen,” Zhao Qiang, Shen Aiqing and Xu Junping, analysts with GF Securities, predicted in a research note. “The current stalemate will be broken and prices will start to fall in the third quarter.”
They contend that as Beijing remains fixated on fighting inflation, which hit a three-year high in June, the property market will be squeezed and prices may start to fall.
Lily Chen, a newly married office worker in Shanghai, is typical of potential home buyers who have been priced out of the current market and forced to rent.
“We’ll wait. Prices are not coming down yet and mortgage rates are too high,” she said.
Record home prices are forcing more and more young couples like Chen and her husband to accept the unhappy condition of luo hun, marrying without a home, something that in the past was unacceptable.
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Mainland home prices heading for a fall
Reuters in Beijing
23 July 2011
Despite enticing smiles from attractive sales agents beckoning visitors to an exhibition for a new property launch, the cavernous hall in suburban Beijing remained virtually empty for hours at a stretch.
In contrast to the blistering heat outside, the languid sales campaign inside the air-conditioned hall reflected a chill that is spreading across the mainland real estate market.
For almost 20 months, the government has been trying to calm down property prices without destabilising the economy, resulting in higher mortgage costs and a growing inventory of unsold homes.
“We will not cut prices in the next six months,” boldly proclaims Cui Fan, a sales agent from Jingxu Real Estate Development, which lies more than an hour from central Beijing and has flats on sale at 19,000 yuan (HK$23,000) per square metre.
Such bravado was rewarded in the past when the property market seemed to go in one direction only. However, many analysts are starting to question that assumption, along with increasing numbers of would-be homebuyers who are perched on the sidelines, hoping prices will fall. “Most developers agree that cutting prices is the trend. They just need to decide the right extent and catch the best timing,” said Sunny Liu, a director at the China Index Academy, a real estate research institute.
Six of eight property analysts polled by Reuters in the past two weeks expect prices to fall during the rest of the year. Five of them expect a drop of less than 10 per cent, with only one predicting larger declines up to 20 per cent. The other two forecast prices could actually rise further, by another 5 per cent.
A sharp price slump is seen as unlikely given overall demand is still strong, fuelled by massive migration from rural areas to cities, and bank deposit rates remain relatively low.
Banks’ own stress tests in 2010 showed they could withstand a fall in home prices of up to 50 per cent, claiming it would result in a rise in non-performing loan ratios of a few percentage points only. Some economists, however, are sceptical that those tests were rigorous enough.
The real estate market has consistently defied earlier forecasts of a crash or even a pullback. What’s different this time around, some analysts say, is that a string of negative factors is finally coming together that could stall or reverse the relentless climb in home prices.
As Beijing gradually turns the monetary tightening screws, some banks have stopped issuing mortgages altogether, preferring lending that can fetch much higher interest rates.
On top of that, three official interest rate rises so far this year have pushed mortgage rates to a three-year high of more than 7 per cent.
And then, last week, Beijing announced the extension of harsh buying restrictions to dozens of smaller cities.
“The property market correction will deepen,” Zhao Qiang, Shen Aiqing and Xu Junping, analysts with GF Securities, predicted in a research note. “The current stalemate will be broken and prices will start to fall in the third quarter.”
They contend that as Beijing remains fixated on fighting inflation, which hit a three-year high in June, the property market will be squeezed and prices may start to fall.
Lily Chen, a newly married office worker in Shanghai, is typical of potential home buyers who have been priced out of the current market and forced to rent.
“We’ll wait. Prices are not coming down yet and mortgage rates are too high,” she said.
Record home prices are forcing more and more young couples like Chen and her husband to accept the unhappy condition of luo hun, marrying without a home, something that in the past was unacceptable.
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