Pricey realty brings cheer to developers

Whenever Zhao Jiayan and his friends gather for dinner, a topic that always comes up is housing.

Engaged to be married later this year, Zhao, a 29-year-old sales manager in Beijing, is still living in old apartment he rents with one-third of his income.

"Five years ago, my parents gave me 100,000 yuan to cover the down payment for a three-bedroom apartment in an up-and-coming western part of the city, but I was too proud and declined their offer. I thought I could buy an apartment on my own but I never could," Zhao said, and according to his friends, he always repeated the same line when they talked about buying an apartment with them.

"Since 2005, Beijing's realty prices have surged at an astonishing speed that far exceeds any increases in my salary," he complained. Now, the 100,000 yuan down payment his parents gave him could not afford to buy a bathroom in that same area.

Zhao's complaint is repeated almost daily by those who cannot afford to buy a place to live, not just in Beijing, but in many other cities with hot real estate markets.

For almost a decade, this sizzling sector of the country's already rapidly booming economy has witnessed staggering rates of annual growth.

Since 1998, when China opened up its real estate market, the country has embarked upon its first real commercial development building spree, with skyscrapers, luxury apartments, and Western-style villas popping up in and around major cities throughout the country.

House prices in some first-tier cities, such as Beijing and Shanghai, have risen fourfold in the past five years, and even in some small- and medium-sized cities, property prices are at least twice as much as that of 2005.

The reasons are two-fold, said Milton Kotler, president of the Kotler Marketing Group, a Washington, DC-based global consulting firm.

"First, rapid middle-class growth demands a vast new supply of upgraded housing. Second, demand for housing, office buildings and commercial space for retail, hospitality and entertainment has barely been meet in hundreds of second- and third-tier cities," Kotler said.

In an attempt to bring greater legal stability to the market, the government has enacted several moderating policies - the most recent and significant of which is the New Property Law, which took effect on Oct 1, 2007.

It serves to provide for equal guarantees for private property and public assets and is aimed at "safeguarding the fundamental interests of the people", according to a statement by Wang Zhaoguo, vice-chairman of the National People's Congress.

Although the protection of private property and assets is so common in developed countries that is often taken for granted, "in China, it would mark a significant step", Wang said.

Oversupply and overpricing exist widely in China's property sector and there aren't enough buyers who make enough money for all the middle- and upper-end properties built in recent years. The vast demand is not to be underestimated.

The property market is not limited to individual buyers. According to a report from private equity service provider, Zero2IPO, there has been an increase in foreign private equity funds investing in Chinese real estate.

This form of large capital inflow was due, in part, to the enhanced investment fever as people and firms believed the 2008 Beijing Olympics as well as the 2010 Shanghai World Expo would send the housing prices in these two metropolises even higher.

Even the worldwide financial crisis that crashed the housing market in the US could not keep China's property market in the doldrums for more than a few months.

Residential real estate transactions were bouncing back in April, as China's credit boom has increased bank lending by record numbers and much of this has not been used to support tangible projects but, instead, has been channeled into asset markets, according to Xie Guozhong, board member of Rosetta Stone Advisors.

Government data showed that bank lending hit a record 7.37 trillion yuan in the first six months of this year, as the government looked to a moderately relaxed monetary policy to support economic recovery. The figure exceeded the full-year target of 5 trillion yuan.

Chinese property sales surged 60 percent by value in the first seven months of this year as record lending boosted the real estate market.

Sales accelerated after a 53 percent gain in the first half of 2009 from a year earlier, figures from the National Bureau of Statistics show. Real estate investment rose 11.6 percent, up from 9.9 percent in first six months of the year.

The property recovery is being further boosted by a lack of investment options in China, according to Kenneth Tsang, Asia-Pacific head of research at LaSalle Investment Management.

As a result, many experts believe China's property prices will continue soaring in the coming years, despite fears that bubbles in the nation's property market may soon burst.

The price increases are unlikely to cool down, according to Eric Wong, an analyst at UBS AG. A report from Stanley & Partners Investment Management said that Shanghai's property market will probably maintain the strongest momentum in the country with residential prices up as much as 20 percent over the next year.

"The massive rural to urban shift is likely to continue resulting in impressive city development for both new and old cities alike," said David Hand, the Beijing managing director and head of China retail for Jones Lang LaSalle, adding that property markets across China will become far more sophisticated in terms of their utilization of capital, investment techniques, vehicles and strategies.

Despite the positive impact of rising values on the national economy, the Chinese government is seeking to slow down the growth and find a more sustainable pace of development.

"Housing prices in Shanghai are already too high. We must prevent excessive inflation of house prices. The government should do something to effectively control the speed of the growth of the real estate market," said Han Zheng, mayor of Shanghai.

His administration has decided to increase the land supply for property development and speed up the construction of affordable housing for low-income families in the second half of this year to ease the situation.

(China Daily 09/10/2009 page53)