Chinese netizens report: 51.23% of sold housing in Shanghai is vacant - Shanghaiist.
Der Spiegel predicts a new challenge for the global economy in 2012, when Hu Jintao and Wen Jiabao step down from the government. The magazine predicts that will be the moment China’s real estate bubble is likely to burst. We’ve heard the argument many times before, but Spiegel focusses on the first ones most likely to suffer from dropping housingprices: local governments in China’s cities:
China, which long seemed immune to the global crunch, now faces the threat of a homemade real estate crisis. This could spell trouble for many local governments, which in some cases have financed almost a third of their major infrastructure projects, like airports and train stations, by selling agricultural land to real estate sharks.
The article quotes Cao Jinhai from the Chinese Academy of Social Sciences in Beijing, who scetches the worst case scenario, when local governments run out of money, because they lose their single most important source of income: land sales.
In the worst case, Cao predicts, there could be a large-scale run on the banks. “Of the 4 trillion yuan in the Chinese economic stimulus package, 3 trillion are in fact coming from local governments — and they borrowed the money from the banks.”
The Go West Project plans to focus on the overproduction of real estate in China during our trip to Yinchuan in October this year.
Increasing influence of SOE’s on Chinese real estate market (source: New York Times)
Earlier this year, we posted an article by the Global Times reported the measures the Chinese government took on the increasing influence of State Owned Enterprises (SOE’s) on the real estate market. Today, the New York Times has a front page article on the growing influence of these SOE’s. The article is chrystal clear about the negative effects the SOE’s have on the real estate market:
By driving up property prices, the state-owned companies, which are ultimately controlled by the national government, are working at cross-purposes with the central government’s effort to keep China’s real estate boom from becoming a debt-driven speculative bubble
Figures proof a potential bubble, about which we reported earlier:
A recent study published by the National Bureau of Economic Research in Cambridge, Mass., found that land prices in Beijing had jumped by about 750 percent since 2003, and that half of that gain came in the last two years. Housing prices have also skyrocketed, doubling in many cities over the last few years.
Read the full article here.
Although not in the list of ‘Go West’ cities, Ordos is one of the most interesting places in China. The city, in the heart of Inner Mongolia, became rich due to the coal mining industry and, according to Merrill Lynch economist Ting Lu:
‘Its gross domestic product has grown a “staggering” 25% a year over the last eight years’, which is more than twice as fast as the national average. (..) Its per-capita GDP of $21,600 is more than twice than of Beijing’.
The Ordos Government ‘has tried to keep the coal wealth closer to home’, by developing a new city next to the existing one. As many new cities in China, the new part of Ordos, called Kangbashi, is still empty. Read the rest of this entry »
Housing development in Xi’an; picture Go West Project
China is taking serious measures in their attempts to slow down the real estate market. Today, the Global Times has a frontpage article which announces that a large number of State Owned Enterprises in the real estate market will be withdrawn from the market.
More than 70 State-owned enterprises will be withdrawn from the real estate sector once their current development projects are complete, China’s State-owned Assets Supervision and Administration Com-mission said Thursday.
However, not everyone believes these measures will help:
“It doesn’t stop the remaining firms from spending hugely on land. Instead, it only leads to the concentration of capital, making them even richer,” Wang said, urging such property developers to commit to offering more affordable housing rather than cashing in.
Read the whole article here: Global Times - SOEs barred from realty.
The news and reports about China’s real estate market are not over yet. Time Magazine has an interesting article Bill about this market, and it tries to answer if China is facing a(n exploding) real estate bubble. A believer in the fact that there is a real estate bubble is Andy Xie:
As economist Xie points out, residential prices in China relative to per capita income are far and away the highest in the world. The housing price-to-income ratio in urban China is over 20, which means it takes the average citizen’s total wages for 20 years to buy an average dwelling. (By comparison, the highest housing affordability ratio for a U.S. city — Honolulu — is 8.2.)
When travelling through China, we often see empty buildings. Or streets. Or city parts. Whenever we ask people what is happening they say ‘Don’t worry, all these apartements are already sold. People are renting them out as an investment.’ We heard that story so many times, and we thought it sounded so unconvincing that it made us ask some questions. And apparently we are not the only ones.
The New York Times is one of a lot of sources that is reporting about China’s real estate market and questioning if there is a bubble appearing, or maybe already there. The article describes a up market development at the Shanghai riverfront, and states that the effect of a Chinese real estate bubble on the worldwide economy is huge. Read the article of the NYT here: The New York Times - Breaking News, World News & Multimedia.
But there are more people writing about this subject. Patrick Chovanec, an economist and associate professor at Tsinghua University frequently reports about this subject. He did a very interesting interview with Zhang Xin, the CEO of real estate developer SOHO China, last month. In this interview mrs Zhang states the following:
Basically . . . our strategy is to sell everything we have. The real estate business should really be looking at rental yield; build a building and then lease it out with the rent giving a decent return. But, because of where China is with asset bubbles, people want to buy the assets regardless of whether they can be leased out or not. People just want to hold [property], even if it is empty.
These are quite remarkeble statements, especially for a CEO of a real estate company. More indicators of a possible bubble can be found in this post of Chovanec.
Property disputes are happening all over China. This is not strange in a country where all land is state owned and every urban settlement is booming: real estate development within these conditions is like preparing a meal in a pressure cooker. Last week, news was that there will be possible changes in the legislation concerning property disputes. China Digital Times had this article about the pending legislation:
Disputes over forced evictions as land gets sold for redevelopment have resulted in violent protests in recent years throughout China. New rules may give homeowners more rights and help ease tensions, Reuters reports:
With China’s feverish real estate market stoking developer appetite for land, existing guidelines allowing local governments to confiscate homes and claim land have drawn demands for change, which could eventually slow demolitions.
Property disputes in a country where the government legally controls all land can lead to rowdy protests, fights with police, imprisonment and even suicide.
According to a set of State Council Legislative Affairs rules pending review through February 12, anyone losing land should be paid market value, while demolition disputes should go to court and lawsuits should settle contract violations.
Chinese facing removal have long complained that the amount of compensation offered is far below the real value of their homes. Some allege that officials collude with developers to demand land in the name of public needs, such as roads, then turn it over to commercial investors who can reap big profits.
Strong-arm tactics should also be forbidden, they say.
Read more about forced evictions and land rights via CDT.
China News: New Rules Seek to Ease China Property Disputes | China Digital Times (CDT).
Cary Hooper on Shanghaiist writes:
The more we hear about China’s housing market, the more outrageous it seems. China’s real estate investment grew by 75% last year: in total, 4.4 trillion yuan was spent last year, a large part of which was fueled by 9.5 trillion in new loans. If you need a physical gauge for just how much that is, chew on this: over the course of the year, China sold 937 million square meters of space, nearly twice as much as in 2008. In order to curb housing market mania, Wen Jiabao announced new curbs on lending to manage credit growth, but with the enormous contribution that housing makes to the national GDP, we’d be surprised if anything but a crash will stop people from buying new houses.
Also check the Shanghai Daily: property sales in China surge 75%
The General Office of the State Council, China’s cabinet, Sunday issued a notice that required central governmental departments and local governments to strengthen management, stabilize market expectations and facilitate stable and sound development of the real estate market. Read further about this subject on:
Global Times - China rolls out fresh measures for real estate market.
HONG KONG — China’s central bank raised a key interest rate slightly Thursday for the first time in nearly five months, in what economists interpreted as the beginning of a broader move to tighten monetary policy and forestall inflation.
After breaking stride a year ago during the global economic slowdown, the Chinese economy resumed galloping growth over the summer. Government investments, real estate construction and consumer spending are all rising briskly, thanks to a surge in lending by government-controlled banks. Read the rest of this entry »
Visitors view models of apartment buildings in a real estate fair in Jinan, capital of east China’s Shandong Province, on April 5, 2008. (Xinhua/Fan Changguo)
Although the property market is not healthy enough, there is no problem for housing prices to rise another 20 to 30 percent due to the Chinese government’s moderately loose monetary policy planned for next year, an economist said Saturday.
Wang Xiaoguang, an economist from the Academy of Macroeconomic Research (AMR) of the National Development and Reform Commission said at a forum in Nanjing, Jiangsu Province.
Apparently unaffected by the global economic recession, Beijing’s real estate prices have continued to rise this year after last year’s brief slump. Amidst complaints about the house price escalation, last week a government minister openly admitted to the media that he couldn’t afford a house in the city.
“Naked wedding,” a popular catch phrase in China coined amid the background of skyrocketing property prices, reflects the reality of many young people in China today. It refers to a marriage without a house, a car, diamond ring, and fancy wedding ceremony – just a nine-yuan marriage certificate.
Global Times - China moves to cool real estate sector, curb prices. - By Zhao Qian, Global Times
The Chinese government intensified its efforts to cool the country’s overheated real estate industry Wednesday.
A policy was allowed to expire that had eliminated the turnover tax for those who sold homes they had owned for more than two years. From now on, the tax will instead be waived only for those selling homes they have owned at least five years.
The new guidelines were released following an executive meeting of the State Council chaired by Chinese Premier Wen Jiabao Wednesday.
Read the rest of this entry »
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