CHINA PROPERTY BEAT
Part 2: 'Cool' not a good thing in Beijing

Part 1: Regulation needed

BEIJING - Beijing is facing great pressure to curb speculation and keep the property market healthy, with prices increasing moderately and balanced supply and demand, say market observers. With the average property price rising at a stable 5% annually in recent years, Beijing is not listed among the nine cities with increases of more than 10% in 2004, according to the Beijing Construction Committee. Statistics from the committee even show that in the first two months of this year the average price for houses under construction fell by 1% in the city.

But some analysts said the figures do not reflect the real situation. "This is only the average price based on all property projects, including large numbers of affordable houses and projects in the outlying areas of the city," said Wang Yongde, a property analyst at CITIC Securities. Prices in downtown Beijing and highly commercial districts such as Chaoyang have soared, even doubling or even tripling in the last two years. For example, the average price at SunStar City, a property project by the Northeast Third Ring Road, has risen to 9,000 yuan (US$1,084) per square meter from 6,300 yuan in mid-2003. "Beijing is also under great pressure to stem high property prices because there are many potential elements to drag the real estate market into disorder," Wang said.

Experts say the biggest factor behind the high prices is simply the lack of sufficient housing supply. Although figures from the Beijing Municipal Bureau of Land and Resources show that the municipal government approved about 19.5 million square meters more for development than in 2003, much of the land is still awaiting the start of construction due to a capital shortage in the wake of the strict loan policy unveiled last year. Statistics from the Beijing Construction Committee also show the house selling rate in the first months of the year jumped 18% to 130% compared to the same period last year.

The rate of housing supply is well behind that of demand as the city speeds towards greater urbanization, said Fu Wenhui, head of a private property consultancy in Beijing. Property speculation and enthusiasm for property investment are also exacerbating the supply shortage and the high housing prices, according to Wang at CITIC Securities. The profit rate from office leasing in Beijing is currently about 8%, much higher than the 3-5% typical in overseas cities.

Many investors buy homes to rent, using this income to pay for a mortgage. Therefore, the central bank's housing loan interest rate increase will not make much of a difference to the property market. Regulators have to do more to help develop a healthy property market, according to Wang.

First of all, the municipal government should build a housing welfare system and develop special property projects providing people with more affordable housing, said Zhang Yan, a researcher at China Securities. "Housing is a social problem. The government is responsible for helping people get settled and should not leave it totally to the market," said Yan Jinming, a professor at the Land & Real Estate Management Department of the Renmin University of China. If the supply and demand problem is solved, prices will probably fall, said Zhang.

On the other hand, to develop a competitive market for developers is also important. Many developers acquire land from the government but have no money to build houses. Although the municipal government ruled in 2002 that approved land that is not built on within two years should be taken back and resold to more capable developers, this is not stringent enough, according to Yang Liqing, a researcher at CITIC Securities.

Experts say the central bank's down payment increase is helpful in curbing speculation but it should be strictly carried out. The lenders should get a grip on house-buyers' loan applications. Meanwhile, Beijing can follow Shanghai in levying a tax on profits generated from selling houses owned for less than one year.

Beijing firm accused of shady mortgage loans
The Bank of China (BOC) has accused a Beijing-based real estate firm of fraudulently getting around 645 million yuan of mortgage loans, according to Xinhua. Wang Zhaowen, a bank spokesman, said on Saturday that the company, Beijing Huayuanda Real Estate Development Company, obtained the money for its Senhao apartment project between December 2000 and June 2002, allegedly from the BOC's Beijing branch, by using falsified housing purchase contracts. The project suspended construction in 2002 and has left an incomplete building at Beijing's Chaoyangmen area near the Second Ring Road.

The loans were then diverted by the company to unspecified places outside Beijing and the project was suspended, said the spokesman. The bank said it reported the case to police in September 2002 after it discovered what it called risky loans. The BOC sacked Xu Weilian, deputy chief of the branch's retailing sector, due to his alleged role in offering the loans, according to the spokesman, and demoted other employees accused of being involved in the scam.

The Guangzhou-based Nanfang Weekend newspaper reported that the procuratorate in Beijing has placed the case on file for investigation and prosecution. Zou Qing, chairman of the Huayuanda company, Xu, and two lawyers, Kong Weidong and Zhan Jun, were arrested, the report said. Zou, a Hong Kong businessman, was charged with fraudulently getting a loan. The Beijing Huayuanda company, according to the report, was invested in by the Hong Kong Huayuanda Group.

Insiders said Xu received over 8 million yuan from the Huayuanda company. But the procuratorate has not decided whether he was taking bribes or participating in swindling, the report said. Kong, from the law firm Beijing Jiahui, and Zhan, from the law firm Beijing Huayi, were accused of providing fake documents to the bank which were used to apply for the mortgage loans. Kong allegedly provided fake documents for 600 million yuan and Zhan was said to be involved in fake documents worth more than 30 million yuan, the report said.

The Nanfang Weekend reported that the fraud case was unveiled in auditing by the National Audit Office in 2004. Xu was removed from office in 2002 when BOC realized the huge risks involved in the project. The paper predicted the Huayuanda company may have falsified about 300 purchase contracts and used 300 fake ID cards.

The China Banking Regulatory Commission, the country's banking sector watchdog, issued a circular last month, urging all banks to do more to prevent and control risks, Xinhua reported. The commission said some banks have encountered frequent and major fraudulent cases which cause huge losses, and recommended strongly that the management and those found to be responsible should be punished. It added that the public should be given access to reports about such cases. 

Tomorrow: Part 3 - Foreign developers flood into Shanghai

(Asia Pulse/XIC)