SHANGHAI, THE
BECOMING THING Housing boom turning to bust?
BEIJING - Yan Lei, a young
banker, toured the tree-lined gardens, sculptures
and fountains of Baoland East Garden, a new Shanghai apartment
complex, but he did not buy, deciding instead to
hold out for lower prices. "Home prices in
Shanghai have begun to fall, so why hurry to buy
now?" said Yan, 30.
He was not willing to
spend the 1.96 million yuan (US$242,800) the
developer was asking for a 140-square-meter unit.
Yan thought less than two-thirds of that would be
enough. "The environment is ideal; the prices
aren't," he said.
China's most expensive
property market has been deflating since June,
when new taxes aimed at speculators halted a six-year
boom
during which prices had almost tripled. The slide
may deepen as developers increase supply and
demand wanes in a city where a typical new
apartment costs more than 50 times the average
annual income.
"Property prices in
Shanghai have risen out of the reach of ordinary
citizens," said Qiu Zhicheng, an analyst at
Xiangcai Securities Co, who forecast prices will
drop 10% in the coming year. "It was only a matter
of time until prices fell."
Real estate
has helped Shanghai's economy expand by 12%
annually since 1990. The city of 17 million people
has built more skyscrapers in those 15 years than
there are in New York. China's central bank
described the city's second-hand and luxury-home
markets as "bubbles" in a report issued in August.
'Selling spree' Home prices
dropped by 7.9% between June and October,
according to the city government's Shanghai Home
Index, which has not reported a more recent
figure. The index more than doubled between
December 1999 and May 2005.
The steepest
declines since then have come at new apartment
projects, as developers such as China Vanke Co,
Shanghai Shimao Co and Shanghai Industrial
Development Co try to raise cash to meet year-end
bills and finance new developments. "Developers
need to pay construction contractors at the
year-end and balance their books," said Chen
Sheng, vice director of the Shanghai Real Estate
Index Office. "That's triggered a selling spree."
The amount of new apartment space on sale
in Shanghai jumped to 9.66 million square meters
in mid-December, almost three times the 3.59
million square meters on the market at the end of
2004, according to city government figures. Home
sales this year reached 26.8 million square meters
by mid-December, about two-thirds of the 34.9
million square meters sold in 2004.
"We
had to cut prices in order to sell the remaining
stock," said Qian Zheng, sales manager at Baoland
East Garden, which is asking an average of 9,300
yuan per square meter, down from 13,000 yuan at
the peak last year. "We need the cash for the
development of another project."
Shimao
Riviera Garden, a high-end project in the city's
Lujiazui financial district, reduced asking prices
to 26,000 yuan per square meter from a peak of
36,000 yuan in March. Vanke, the nation's biggest
publicly traded developer, cut prices for its
developments in Shanghai by as much as 20% in
September to spur sales, according to board
secretary Xiao Li.
Slowing demand has
prompted some developers to offer perks such as
free plane tickets and air conditioners, while
others are guaranteeing refunds in the event of
further price declines, a tactic used by Hong Kong
developers after 1997, when the city's real-estate
prices slumped by 60%.
Bags of
cash The current buyers' market is quite a
turnaround from the pre-June boom, when would-be
buyers sometimes had to wait in line for days to
register for popular developments, and local
newspapers were peppered with stories about rich
entrepreneurs from Wenzhou and other cities
arriving with bags of cash to invest in real
estate. "I brought a chair with me and sat all
night," said Ding Ou, 30, who bought a home in the
city center in 2002. "The market was crazy, and it
got much crazier afterwards."
Darkened
windows became a common feature of the nighttime
cityscape, as developers and speculators
stockpiled vacant apartments in anticipation of
further price increases. Prices jumped 19% in the
first quarter of 2005 from a year earlier,
prompting central bank governor Zhou Xiaochuan to
say Shanghai's home prices were worthy of "concern
and attention".
The central bank in March
raised the minimum interest rate lenders must
charge on home loans and encouraged them to demand
bigger down payments. After those measures failed
to dampen price gains, the central government
ordered local authorities to apply a 5.5% tax on
the sales price starting in June. In March, the
State Council said that rising property prices
were threatening financial and social stability in
China, in a six-page circular that ordered local
governments to take steps to curb "excessive"
growth.
In Shanghai, a new
100-square-meter apartment costs an average of
914,000 yuan, according to the Shanghai Real
Estate Exchange. That's 55 times last year's
average disposable income of 16,683 yuan. The
comparable ratio for the UK is 5.5, according to
HBOS Plc, the nation's biggest mortgage lender.
