A Roof for Everyone

A Roof for Everyone

-2007 Midyear Real Estate Market Review

The People's Bank of China on August 21, 2007,

surprised the real estate market with its fourth interestrate

hike of 2007, following a third rate hike on July 21.

The increase was slight at 0.27 percentage points

for a one-year deposit and 0.18 percentage points for its lending

rate. Experts said they did not believe the real estate sector was

targeted by the rate hike, but it will be affected by the Chinese

Government's concern about excessive liquidity, made worse by

mid-2006 stock market fluctuations.

Put simply, the government tightened

money supply as a whole.

With the latest rate hike, benchmark

deposit rates have increased from 2.52

percent to 3.6 percent and the lending rate from

6.12 percent to 7.02 percent.

For a 20-year property loan of 400,000 yuan

(US$52,000), borrowers will now pay 2,966 yuan

(US$386) per month, compared with 2,822 yuan

(US$367) prior to the four rate hikes, an increase

of 144 yuan (US$18.70) per month.

Though 144 yuan may not seem like much

to some, for many other borrowers it comes

as a blow, especially in the already expensive

property market. In a recent survey conducted

by the Homelink Housing Real Estate Agency,

54.1 percent of the respondents reported they

are delaying plans to buy property because of

frequent interest-rate hikes.

 

Turning Point Emerging?

 

Probably not, if property prices, which are

increasing nationwide, are taken into account.

During the first six months of 2007, the average

price of commodity housing in 36 cities increased

by 14.22 percent, with that of Beijing growing by

10.1 percent, according to the Beijing

Municipal Bureau of Statistics.

Bureau statistics show that presold

residential buildings within

the Fourth Ring Road are priced

at 13,696 yuan (US$1,780) per square metre

on average, and new properties with a squaremetre

price of less than 10,000 yuan (US$1,300)

can seldom be found in urban areas within the

Fifth Ring Road. The average price of secondhand

property sold in the period has increased to

8,518 yuan (US$1,107) per sq.m, a 33.7 percent

increase year-on-year, according to Homelink.

Propelled by the upcoming Olympic Games,

second-hand property prices in the Olympic area

between the North Fourth and Fifth Ring Roads have

grown by 25 percent, according to statistics from

Golden Keys, a major real estate agency in Beijing.

But the enthusiasm of property developers

for better prices seems one-sided, as people find

their pay is not rising fast enough to keep up with

a higher cost of living. Home-owning dreams are

being delayed, if not eliminated, especially within

reasonable commuting distances.

Sales of finished housing in Beijing in the first

six months declined by 43.9 percent in terms of

spatial area if compared with the same period in

2006, while that of unfinished housing fell by 19.5

percent, according to data available at the Beijing

Municipal Bureau of Statistics Web site. Sale prices

of second-hand housing increased by 6 percent.

Real estate loans also shrank significantly.

Sources from one of the major property loan

issuers told Economic Information Daily, that his

bank only issued 350 million yuan (US$45.5 million)

in property loans during the first half of 2007, far

behind the pace of 2006 when loans were valued at

2.7 billion yuan (US$351 million) for the year.

Niu Fengrui, director of the City Development

and Environment Research Centre of the Chinese

Academy of Social Sciences, said, "The decrease

in the amount of housing loans means fewer

people are buying, a result of soaring prices. They

could buy a unit for 1 million yuan (US$130,000)

before, but now, 1.5 million yuan (US$195,000) is

probably not enough. Therefore, some have given

up or have decided to wait and see."

Still, these figures probably should not be

perceived as signs of a cooling real estate market,

according to industry insiders. Some say the slower

pace of buying reflects a shifting of investment

from real estate to the more profitable stock

market. Further, people are still confident of the

relative competitive status of Beijing, and many

are confident that Beijing will remain competitive

even after the 2008 Olympic Games, because of

its large population and increasing opportunities for

business and personal advancement. In the past

five years, an average

of 340,000 people from

outside Beijing became

permanent residents in

Beijing each year.

 

Government:

Tightening Credit

 

Higher interest rates and

government efforts to cool the

economy have not been reflected in

a decline in housing prices, yet the

real estate sector is being affected

in many ways.

Since the end of 2006,

the China Banking Regulatory

Commission (CBRC) had required

commercial banks not to issue

loans for partial projects. The

Beijing Office of the CBRC has

also forbidden loans for properties

that have not obtained legitimate

licenses or whose own capital is

less than 35 percent of the total

investment. Housing loans for

uncompleted or limited-ownership

projects are also forbidden.

In July 2007, Liu

Mingkang, director

of the China Banking

Regulatory Commission,

said in a conference

that the down payment

of housing loans should be increased to 40

percent to 50 percent from the current 30

percent. His comment, although not put in effect,

did not go unnoticed by the public.

Commercial banks are starting to tighten

their housing loans. Branches of the Bank of

Construction in Shenzhen have stopped financing

second-hand properties. Other banks in Shanghai,

Chongqing, Nanjing and other cities are taking

similar measures.

To restrain speculation by foreign capital

in the Chinese property market, the Ministry

of Commerce and the State Administration of

Foreign Exchange issued a notice in June 2007

restricting foreign capital investment in the

sector. This came after the Notice on Regulating

Purchases of Commodity Houses of Offshore

Institutions and Individuals was issued by five

municipal departments of Beijing in early 2007.

 

A Roof for Everyone

 

With commodity housing prices seeming resistant to

downward pressure, the government is adjusting its housing

policies to make more affordable housing available to middle

and low-income families who seem to face a hopeless reality.

According to a plan for layout of welfare housing and

limited-price housing issued recently by the Beijing Municipal

Commission of Urban Planning, commodity housing projects

beyond the Third Ring Road should have at least 15 percent

welfare and limited-price housing houses in the project.

Welfare housing mainly means Economical Houses and Low-

Rent Houses, the construction of which will be expanded by 2

million sq.m and 0.3 million sq.m in 2007. Up to 3 million sq.m

of limited-price housing will also be built in the same period,

according to the Beijing Construction Committee.

Limited-price housing, as its name suggests, has a predetermined

price cap set by the government, which means they

should have lower prices-10 percent to 20 percent lower in

most situations-than commodity houses in the same area.

They come with full ownership rights, but are usually small-sized

and designed for qualified, middle-income families.

The economically affordable housing programme benefits

local residents with annual family incomes of less than 60,000

yuan (US$7,800) who have no home of their own. Other

restrictions apply, but income and other restrictions have

been circumvented by the unscrupulous, who have used fake

documents and other schemes to muscle out legitimate buyers

in the market for purposes of financial investment only. Statistics

show than only 50 percent of economical houses in Beijing are

occupied by original homeowners; others are rented or sold.

On June 7, the new rules regulating the application of

economically affordable housing were publicized to solicit public

opinion. According to the new rules, names of applicants should

be publicized for public supervision. People can report to related

departments if they discover any unqualified applicants.

With regard to the incomes of people who reside in

economically affordable houses, the new rules have more

detailed limits. The annual incomes of single residents must

not exceed 22,700 yuan (US$2,951), and the 60,000 yuan

(US$7,800) limit is applicable to families that have five members

or more only.

For poor families who cannot afford to buy their own

properties, the government will provide housing subsidies or

affordable houses for them to rent.

At the National Housing Work Conference held in August

2007, bringing more poor families into the affordable renting

system was a focus of discussion and decision. It was decided

that by the end of 2007, the programme should cover all

qualified families in the cities; by the end of 2008, the same goal

should be realized in the country's counties.

To ensure that funds for affordable lodging will be available,

the Conference required that the net returns of the Public Housing

Fund should be allocated to rental housing construction, along

with no less than 10 percent of net returns from land selling.