China's housing robust despite
controls By Candy Zeng
SHENZHEN - When people greet one another
here these days, they are likely to ask, "What's
the price of your apartment now?" instead of the
traditional "Have you eaten?"
Official
statistics released last month showed that average
housing prices in 70 large and medium-sized
Chinese cities rose 6.4% year on year and 1% month
on month. Among them, five cities - Beihai,
Guangxi province; Shenzhen, Guangdong;, Wenzhou,
Zhejiang; Beijing; and Bangbu, Anhui province -
witnessed soaring housing prices, a rise of more
than 10% in May
from
a year previous.
Shenzhen was once famous
for the "do not buy a house" movement launched by
a businessman last year calling on people to fight
high housing prices by postponing buying, but it
seems the housing market won the battle.
To the disappointment of potential
homebuyers, prices in Shenzhen, a rich and modern
city bordering Hong Kong, began to accelerate at
the beginning of this year and jumped by 12.5% in
May on a year-on-year basis.
The average
transaction of the 189 new properties sold between
January to May reached 11,905 yuan (US$1,566) per
square meter, while in May the price hit 14,200
yuan, which is 52% more than the average price of
9,384 yuan for the whole of 2006. In downtown
Shenzhen, the average price is more than 20,000
yuan, and prices on an upper-scale housing estate
could exceed 50,000 yuan.
Like many
property owners, Mrs Xu gets phone calls from
real-estate agents almost every day inquiring
whether she wants to sell her two-story,
260-square-meter apartment when the price was
right. The apartment, now worth more than 7.8
million yuan, only cost her 2.7 million in 2004.
The skyrocketing market trend startled the
local government too. Shenzhen Mayor Xu Zongheng
made a high-profile speech at a recent news
conference, saying, "The fast growth of housing
prices will directly harm the interests of the
general public ... and the government must let its
controlling policies work effectively on the
market."
But government intervention,
including a slew of initiates ranging from
restricting investment in property development to
increasing taxation on housing transactions, from
enforcing rules to demanding that developers build
a certain proportion of low-end apartments not
bigger than 90 square meters to cracking down on
malicious housing speculations, appear to have
been outpaced by strong demand either for
improving living conditions or for speculation.
The property market in Shanghai, which
experienced an astonishing surge in 2004 but has
been dull for the past two years, is showing new
signs of life, with prices in the city center
rising and the transaction volume growing in the
first half of 2007. The average price reached
10,439 yuan, and total personal housing mortgages
increased by 880 million yuan in May.
The
rising prices drove many onlookers into the
market. Statistics by Shanghai's housing authority
showed that 848,100 square meters of residential
housing were sold during the week from June 4-10,
which was 11.45% higher than the previous week.
The robust growth also made property
developers greedier in a seller's market, which in
turn pushed prices up. Some developers in Beijing
said the general profit margins are higher than
30%, and one even openly said at a seminar that
his company won't take a project if the profit
margin is less than 50%.
Many developers
pretend to sell out the first batch of completed
apartments to their staff or other stakeholders
and resell them to the real buyers at higher
prices later, while some just stock up half or
even more of the available supply to wait for the
price to go up.
A new trend is that some
small and medium-sized cities are becoming
infected with the housing market fever. Bangbu,
Anhui province, was put in the limelight for its
10.2% hike in property prices in May, fifth among
70 cities surveyed, but the city only ranked 182
among Chinese cities in terms of general
competitiveness. The average price rose to 2,800
yuan per square meter, with the highest price
reaching 4,000 in its new city area, while the
average monthly income of the local residents is
less than 2,000 yuan.
The southern coastal
city of Beihai, Guangxi province, tops Chinese
cities with the largest price surge in newly
finished residential properties for three months
from March to May. In April, the price increase
reached as high as 23.6%. But in contrast to the
worry and pressure suffered by Shenzhen's mayor,
Beihai Mayor Lian Yinong openly said the price
hike was normal and a reflection of the city's
economic growth, and he expects higher prices to
be in the future.
In Chongqing, some
developers have lifted their housing prices by
some 20%. Given the robust trend, housing prices
in Chongqing are expected to grow by 30% annually
in the coming two years, with the highest price
exceeding 10,000 yuan per square meter.
Previously, the Chongqing housing market
was dominated by local buyers looking for a place
to live, and the demand for investment was
minimal. Now things have changed.
"We've
got more customers from other cities. People from
Shenzhen and Shanghai account for more than 15% in
the buyers of a new property on sale," said a
sales manager surnamed Li of Xinxie Housing Agent
in Chongqing.
The average housing price in
Chongqing is 3,190 yuan per square meter, but no
one would expect to buy an apartment at this price
in busy downtown and other hot areas. In the
economic-development zone in north Chongqing, the
average transaction price is 4,881 yuan. And in
the busiest part of the city center, the price for
a second-hand home could be higher than 5,000 yuan
per square meter.
Some attribute the
stronger-than-ever housing market to the wealth
effect of China's bullish stock market, which has
lasted more than two years. As the Shanghai stock
index rose from the bottom - less than 1,000 - to
4,000 points in May, some investors choose to
reinvest their gains from the stock market in real
estate.
In Shenzhen, some real-estate
agents say they have more customers buying houses
with profits earned from the stock market.
According to Shen Ruipei of Shenzhen Mantanghong
Housing Agency, each outlet of his firm received
more inquiries in June when the stock market went
dull. Expectation of a tighter monetary policy,
such as higher interest rates, will draw more
investors from the risky stock market to the
climbing property market, he said.
To cool
the housing market, the government should have
increased the supply of land. But it has been
doing the opposite, for fear that real-estate
projects are eating into the country's declining
stocks of arable land at the expense of
agricultural production and farmers' livelihoods.
So the tightening supply of land fueled price
hikes. In the past three months, land prices in
Chongqing rose by more than 100%. In Jiangbei
district of Chongqing, one mu (666.67
square meters) of land cost 5 million yuan last
year but is now 10 million yuan.
In
Shenzhen, two residential plots in its Bao'an
district were auctioned off for 200 million yuan
higher than the base price. The cost of a finished
building will be more than 9,000 yuan per square
meter, somewhat close to the average price of
10,963 yuan in the district in the first four
months of 2007.
Some developers who bank
land for higher profits are so powerful that the
local law-enforcement authorities can do nothing
to take back unlawfully idle land, an insider in
Shenzhen said.
In Beijing, disappointed
potential homebuyers turn to a kind of cheap
housing without legal right of ownership. The
ownership of a whole building belongs to a village
and is not authorized for sale without an
ownership license issued by the national
construction authority. The buyer of an apartment
in the building can live in it but does not own
it, hence they are known as "minor property right"
buyers. Such housing is attractively cheap, with a
square meter ranging from 2,500-4,000 yuan in a
Beijing suburb.
This kind of house is
cheap because the village does not pay any
land-transfer and related fees and taxes to the
city government for the change of use of the land,
nor does a village charge as much profit as
developers.
The latest issue of Market
Newspaper cited an insider as saying that in a
housing project where the development cost only
accounted for 20% of the selling price, the
developer pocketed 40% as profit, with the
remaining 40% going to various government bodies.
So under the current land-requisition
system, how to regulate and control the housing
market remains a tough task for the Chinese
government, given the failure of its policy over
the past two years.
Candy Zeng
is a freelance journalist based in Shenzhen.
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