ST : Sales fall as buyers and sellers hold back

May 8, 2010

CHINA

Sales fall as buyers and sellers hold back

Govt measures to curb market taking effect; analysts expect prices to plunge by 30%

BEIJING: New government measures to curb housing prices in China have sent sales volumes into a tailspin as both buyers and sellers are holding back to see how the market will react.

Prices have not fallen significantly because sellers are still playing wait-and-see, but brokerages are already predicting a 30 per cent drop eventually.

Yesterday, Housing and Urban-Rural Development Vice-Minister Qi Ji, in justifying the latest measures, said rising property prices had to be reined in to prevent social instability.

Meant to cool the overheated market, the measures include higher downpayments and loan rates. When they were announced in the middle of last month, the number of deals fell by more than half in major cities across China over the May Day holidays.

In the capital Beijing, where the regulations were among the harshest, average daily sales have fallen by more than 80 per cent from last month. Shanghai, Guangzhou, Tianjin and Hangzhou also reported drops of 50 per cent to 70 per cent.

'If new sales continue to stay sluggish, it is just a matter of time before prices also start to fall,' said Professor Dong Fan, director of the Real Estate Research Centre at Beijing Normal University.

This is exactly what the policies were meant to achieve.

Runaway home prices have in recent years become a hot issue in China, where a culture of home ownership rather than renting dominates.

In March, the property price index of 70 major Chinese cities jumped 11.7 per cent in a year, the fastest rise since the index began in 2005.

More dramatic hikes were seen in the larger cities. In Beijing, the average price of a new apartment rose 88 per cent to 21,880 yuan (S$4,485) per sq m.

The Chinese government had previously appeared to vacillate on the issue, but came under increasing pressure to intervene.

The pressure came from first-time home buyers as well as economists who believed a US-style housing bubble was in the making.

Last month, the central government raised the mandatory downpayment by 10 percentage points, hiked home loan rates and announced a trial for an impending property tax.

The municipality of Beijing followed up with more severe regulations, restricting families to buying just one new property each, on top of however many they now own.

Sceptics, however, doubt the measures will achieve their aim. While many buyers are holding back, they point out, a sizzling economy growing at 11.9 per cent will prop up the demand.

Besides, others note, the Chinese are notoriously adept at finding loopholes in the law.

According to a Xinhua news agency report, banks in Shenzhen were already skirting round the new loan limits by disguising housing loans as other forms of consumer credit.

Some buyers, add analysts, may also fake divorces or delay marriages to get around the restrictions that apply to family units.

And even if the new measures work, the Chinese government itself could partially withdraw it - for fear that an overcooling of the property market might spark loan defaults and property-related layoffs, causing a general downturn.

Doomsayers cite as evidence the falling Shanghai stock index, which has dropped 10 per cent since the cooling measures were first announced. Real estate companies had led the losers' table.

A paper released by the Chinese Academy of Social Sciences on Wednesday also raised concerns that China's economic growth may be too dependent on the real estate industry, suggesting that it needs to be gradually weaned off.

Prof Dong warned: 'Real estate is like a huge web that connects a dozen other industries. If they collapse together, the consequences would be unimaginable.'

But for now, it is the genuine home buyers who are smiling.stbeijing@gmail.com

Additional reporting by Lina Miao

Grim figures over May Day holidays

Beijing: Down 82%

Shanghai: Down 75%

Guangzhou: Down 70%

Wuhan: Down 50%

Tianjin: Down 50%

Month-on-month figures



A sales agent (right) speaking to a visitor in front of the model of a house at a real estate fair in Shenzhen, China this week. The government has introduced cooling measures, on fears of a US-style housing bubble forming. -- PHOTO: REUTERS