Monday February 25, 2008

Government's tightening policies wring the juice out of real estate business

By HU YUANYUAN

ONE after another, major Chinese cities are reporting sluggish sales in their real estate markets, due primarily to the central bank’s continual interest rate hikes and the following credit crunch.

For Zhang Qiang, a sales executive of Beijing Haolong Real Estate Co, the early weeks of 2008 have been especially cold – not because of the snow storm that hit the southern provinces, but the company’s worrisome sales records.

It is the worst time in two years.

Because of the government’s policies to cool down the sizzling property market, many potential buyers have postponed their home purchase plan.

“Before the spring festival, we barely managed to sell five apartments for one-time payments, at a pretty nice price for buyers,” he said. “With that payment, we just got enough, 3 million yuan, to pay the salaries to our staff before the holiday season.”

The company’s project is about a half-hour walk from the Beijing International Trade Centre, or Guomao. The average property price of the area is above 20,000 yuan per sq m.

“With such a favourable location, the houses sold quite well in the first nine months of 2007. However, sales dropped sharply in the fourth quarter, with more and more people taking a wait-and-see attitude,” Zhang said.

Because of the government’s policies to cool down the sizzling property market, especially increasing the down payment to 40% for a second apartment, many potential buyers have postponed their home purchase plan. Since the last quarter of 2007, major Chinese cities have actually seen sales and prices plummet in the property market.

Shenzhen was the first to feel the pinch. Sales of pre-owned houses in the southern city fell 36.8% in September, with prices dropping as much as 47.1% compared with August. New houses went for an average 14,797 yuan per sq m in the city in October, a 10% drop from September.

Shanghai’s property market, too, has cooled down since mid-November, dropping 50% from the first half of last year to below 600 apartments in November, according to the China Real Estate Index System.

Beijing municipal construction committee statistics show the average price of 45 new residential buildings dropped 358 yuan to 14,966 yuan per sq m in November, the first time the capital’s property market fell in six months. More and more property projects are offering discounts or other sales promotions.

Shrinking sales and the government’s tightening of property finances have substantially squeezed their cash flow. “We are still struggling to pull through, hoping the market will warm up in the second quarter of this year,” Zhang said. “However, if this ‘winter’ is too long, we may have to sell the project to bigger developers.”

“The year 2008 will be a difficult time for medium and small property developers, and there will be more mergers and acquisitions in the industry,” Quan Zhong, chairman of CHANGE, a Shanghai-based real estate services provider. Statistics show there are around 30,000 real estate enterprises in the country, leaving much room for a reordering of the sector, Quan adds.

Meanwhile, M&As between foreign players and local developers are also speeding up.

“Because of the government’s more restrictive policy on foreign investors’ entry into the property market, many of them, especially the newcomers, would like to join forces with local players,” says Eric Chan, deputy managing director of Savills (Beijing branch), a UK British real estate service provider.

News Poll

Latest Jobs from Star-Jobs

Latest from StarProperty