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2 China casts fearful eye at
subprime By Niu Zhijing and
Zhou Jiangong
home buyers snapped
up new homes, with 1,026 sold in one day alone,
October 9, in Shanghai.
The price of
residential houses in China's 70 major cities
climbed 8.2% year on year in August, which was the
fastest since 2005 when the government started the
monthly monitor, according to the National
Development and Reform Commission (NDRC), China's
top economic planning body and price regulator.
With the looming summer Olympic Games in
2008, housing
prices in Beijing rose 12.1%
from a year earlier, while Beihai, a small port
city in south China's Guangxi province bordering
Vietnam, had led the price hikes for almost eight
consecutive months, averaging 13% year on year.
A series of cooling measures have been
taken by the government since 2005, such as
raising housing transaction taxes and restricting
foreign investment in the property market. But
none of them could stop house prices from soaring.
All these measures appear to have failed
to address the basic issue of the housing market:
meeting the need for a place to dwell by millions
of families in Chinese cities. High price and
inadequate housing supply mean millions of poor
families and unemployed cannot afford it and have
to remain in small, old, crowded
housing.
In fact, with rapid urbanization,
ever-growing demand for housing is the major
factor pushing prices increasingly higher. Since
China scrapped the government subsidized urban
housing system in 1998, the property market has
been developing fast, with more and more
better-off urban residents seeking bigger living
spaces. After a decade, tens of millions born in
the baby boom in the 1980s now plan to buy homes
for marriage. The pattern of population growth in
China shows there will be 8 to10 million urban
adults looking for new homes each year.
Although building of houses continues
apace across the country, supply just cannot meet
demand. From January to August, sales of houses
increased 30.9%, 21.6 percentage points higher
than the same period last year. However, the
vacancy ratio of newly-built housing declined by
9.3% to 6.029 million square meters from January
to August this year.
"The market demand is
strong while the supply-demand gap is relatively
big," the NDRC concluded.
Last year, in
order to build more units with limited land and
make houses affordable to more residents, the
State Council ordered 70% of all new residential
projects to be smaller than 90 square meters (970
square feet) in an effort to expand supply.
While the commercial developers have the
capital ready to grab more land, the land supply
for affordable housing is insufficient. The NDRC
blamed local officials for not doing enough to
ensure sufficient housing, but the local
governments which rely on real estate as a major
income source have no incentive to supply more
land and bring prices down.
The new
regulations ban commercial banks from lending to
developers to buy land for development. And banks
can only lend no more than 65% of the capital for
construction. In other words, property developers
must have enough money to buy land and at least
35% of the funds for development, to qualify for
bank loans.
Although this will make bank
loans for property developers costly and difficult
to obtain, some analysts say this would hardly be
a problem for major developers, who can easily
find funds elsewhere.
For example, several
developers have launched initial public offerings
on the Hong Kong stock exchange. And ones that are
already listed, such as Shenzhen-based Vanke, can
issue corporate bonds or new shares to raise
funds. In fact, the booming property market over
past years has enable developers' wealth to
explode geometrically.
Of the top 10
Chinese tycoons on both the Forbes and Hurun
(Rupert Hoogewerf) lists in 2007, eight on one
list and nine on the other are property
developers.
Sitting on top of the Hurun
list with over 100 billion yuan (US$14 billion) is
Yang Huiyan, 25-year-old daughter of the founder
of Guangdong property developer Biguiyuan, which
was listed in Hong Kong recently. Yang is also
sitting on the largest land reserve of all
developers listed in Hong Kong: 45 million square
meters.
Zhou Jiangong and Niu
Zhijing are Shanghai-based analysts on China's
economic, political and foreign affairs.
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