Accelerating Fall in Sector Signals Government Efforts Are Working, but Raises Fears About Growth
BEIJING—A decline in China’s property prices is picking up steam, suggesting Beijing has had some success in taming housing costs, while also raising concerns that prices could drop too far and fast when the rest of the world is relying on the country as an engine of growth.
House prices were flat or falling in a majority of China’s top cities, weekly data released Monday show. The weekly data, though volatile, add to evidence that housing prices are headed downward after years of consistent increases.
Beijing has been trying to calm property prices for about two years in an effort to make housing more affordable and douse a possible catalyst for social unrest. Steps by regulators include tightening lending and putting tougher restrictions on buying homes.
An unanswered question is whether China can gently let the air out of its real-estate bubble or whether the bubble will burst, undermining economic growth. With the European Union and U.S. struggling to kick-start their own economies, global growth depends increasingly on the health of the Chinese economy, the world’s second-largest.
Beijing’s top officials say they plan to stay the course. “I will especially stress that there won’t be the slightest wavering in China’s property-tightening measures—our target is for prices to return to reasonable levels,” Premier Wen Jiabao said in a speech on Sunday in Russia.
Real estate is a major driver of growth in China and a big source of demand for steel and cement, as well as of domestic demand for manufactured goods such as furniture. As much as 25% of the Chinese economy may be tied up in real estate and related industries, according to analysts. Ordinary Chinese frequently invest in real estate, so a sharp downturn could batter their savings.
Prices in the major southern cities of Shanghai and Guangzhou are down from their levels at the start of the year, according to data released by the China Real Estate Index System.
Prices fell by 0.23% nationally in October compared with September, faster than the 0.03% drop posted in September from August, according to data from the same index.
In Shanghai, China’s business capital, average prices for new residential real estate in many parts of the city are under asking prices for existing homes, according to Shanghai Urban Real Estate Surveyors-Appraisal Co., a consulting firm.
Steeper declines may lie ahead. “The correction is not over; it has just started,” J.P. Morgan said in a note Friday. “However, the likelihood of a nationwide collapse is very small…. Bursting the bubble is clearly not part of the policy objective.”
J.P. Morgan analysts forecast that prices nationally could fall 5% to 10% over the next 12 to 18 months, and as much as 20% in some major cities.
Real-estate developers are having greater problems finding financing to complete projects or start new ones. Trust-investment vehicles—a key part of China’s shadow lending system—have become a major source of funding for developers, after bank lending all but dried up this year.
New financing provided by trust companies to property developers fell 17% in the third quarter from the second, after regulators stepped in to curtail trust lending to the sector, according to data issued Friday.
China’s trust companies provided 113.9 billion yuan ($18 billion) of funding to property developers in the three months ended September, according to data on the China Trustee Association website, down from 136.7 billion yuan in April through June. In the first quarter, they provided 71.1 billion yuan in funding.
Trust companies don’t take on the risk of an investment themselves, but funnel funds from companies and wealthy individuals into a wide range of investments, including private equity, loans, direct stakes in property development, and even bonds and stocks.
For the Chinese public, complaints still focus largely on housing affordability. But the price drops have also prompted some outcry. In late October, more than 40 people gathered at the showroom of developer Greenland Group in Shanghai amid heavy security to express frustration that properties had been discounted after they had made their purchases.
A real-estate agent with the company said discounts for 28% were on offer.
“I bought an apartment here in September and now I’ve lost more than 400,000 yuan ($63,000),” said a businesswoman in her 40s. “That is my hard-earned money, how can the developer be so ruthless?”
Greenland Group said Monday that the protests have died down, but didn’t provide other details.
Property developers have long held back from cutting prices on new developments, hoping the government would blink first and relax restrictions on purchases. Instead, authorities have continued to increase pressure.
The southern city of Zhuhai last week implemented a cap on the prices developers can charge for new housing, a temporary move that emphasizes the pressures officials face to cool the housing market.
On Monday, Hangzhou-based property developer Greentown China Holdings Ltd. said it is considering disposing of some of its property projects to boost its cash flow, rather than cut prices.
“Selling the projects is a better option than offering large discounts, which would tarnish our image with our end-customers,” Chief Financial Officer Simon Fung said. He said disposing of projects outright is also faster than selling individual units at discounted prices.
China’s banking regulator asked trust companies in September to report their exposure to Greentown, amid concerns about how some developers have funded their projects. Greentown executives say the company remains strong.
Write to Dinny McMahon at [email protected] and James T. Areddy at [email protected]
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By: Dinny McMahon and James T. Areddy with contributions from Bob Davis and Tom Orlik
Source: The Wall Street Journal, Nov. 8, 2011
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