Realty check

Checks & balances

The extreme volatility in the property market prompted the government to come out with a series of measures to cool the sector. Prominent among them were the hike in the minimum down payment rate and the increase in interest rates.

As a result of these curbs, the realty market got off to a relatively sluggish start this year. Housing prices recorded their first year-on-year decline of more than 20 percent during the first three months. Real estate investment growth slowed and stood at 23.5 percent, compared with 27.8 percent in the last quarter of 2011, according to Vigers, an international property consultancy.

The immediate fallout of the housing prices was seen in the GDP as the government was forced to set a lower annual growth target of 7.5 percent in March, the lowest growth target set by the government in over eight years.

The macro shock had its impact on real estate investment. Of the 5.08 trillion yuan invested in the Chinese property market till July this year, only 22.8 billion yuan came from foreign funds, a 54.3 percent year-on-year decrease, according to the NBS.

In August, some foreign developers were reported to have exited their joint ventures in China and also their land holdings. Irish real estate developer Treasury Holdings was said to have sold its stake in two of its Chinese subsidiaries to avoid growing risks in the Chinese market, according to China Times.

Rumors over the biggest American developer Tishman Speyer selling a piece of land in Shanghai worth 4.8 billion yuan was also played up as a sign of foreign companies withdrawing from the Chinese market.

Property markets in the three major Chinese cities sported a bleak look in September this year, as there were very few transactions. Over 10 major land transactions were halted in Beijing, while the curbs on realty continued to be further strengthened in Shanghai. There were hardly any high-end residential property transactions in Guangzhou during the same period.

Growth credentials

Despite the bearish undercurrents, industry experts still feel that the realty market has the best growth credentials among all industries in China, as demand for housing and commercial property is still high.

The lower economic growth and sluggish property volumes are temporary phenomena created by external economic pressure and natural corollaries of China's market economy transformation, experts say.

"Though economic growth is slowing in China, its growth rate is still the best among all major global powers. The growth rate in the US is about 2 percent while in Europe it is nearly zero," says Frank Chen, executive director and head of CBRE Research China.

Most of the global investors have temporarily stalled fresh investment decisions due to the lower growth in China and the global economic crisis. The current value of most of their investments in China "made before 2008 has more than doubled or even tripled. Therefore it's a good time for these foreign investors to repatriate the profits," Chen says, adding that most international investors are less active in China this year due to difficulties in raising funds.

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