Properties more expensive in Jan-May
By Jia Hepeng (China Business Weekly)
Updated: 2004-06-28 15:10

Property prices in China rose 10.7 per cent, on average, during the year's first five months, despite the central government's efforts to cool down overheated sectors such as real estate.

"The rapid growth in housing prices reflects people's concern there will be a decrease in supply and a rise in mortgage rates," said Jiang Jingliang, a senior analyst with CB Richard Ellis' Beijing office.

"That is a side effect of the economic adjustment measures."

Jiang, and other experts, suggest the price hikes will taper off by year's end.

National Bureau of Statistics (NBS) figures, released earlier this month, indicate the average sales price of a residential home was 2,479 yuan (US$299.50) per square metre between January and May. That was up 8.3 per cent from the same period last year, NBS reported.

The average sales price of an office surged 22.5 per cent year-on-year, NBS said.

It did not provide actual figures.

The rising property prices defy the government's ongoing economic adjustment, which is aimed at controlling inflation and reducing fixed-asset investments.

In reality, the tighter lending policies, within the real estate sector, were implemented in June 2003, nearly 10 months ahead of the central government's restrictive policies within the steel, auto and aluminium sectors.

The People's Bank of China (PBOC), the nation's central bank, released tight mortgage regulations last June.

Under that policy, mortgages for villas and luxury apartments, office buildings and second homes were limited to finished housing. Also, the lending rates were increased.

Commercial banks were also ordered not to lend money to real estate developers who could not provide 30 per cent of the capital for their developments.

PBOC's policy, in late April, was strengthened by a China Banking Regulatory Commission circular, which required banks to be cautious when extending loans to real estate developers.

An estimated 70 per cent of the capital for real estate developments in China is raised through loans from banks.

As a result of the tighter lending regulations, many developers' cash flows have been cut off.

The government has also imposed tighter land-management regulations.

Prior to 2002, land in most Chinese cities had been transferred privately. In early 2002, the Ministry of Land and Resources (MLR) issued a circular that required all land be transferred publicly, either through auction or public tender.

At the beginning of this year, Beijing's municipal government released an order that required all land be transferred through auction or public tender.

All non-agricultural land in China belongs to the State, but developers and residents can purchase, and trade land-use rights to properties. Land-use rights generally are for 70 years.

Samson K. T. Chan, a senior expert with Shanghai-based property investment bank Stanley & Partner Co Ltd, said the clampdown on credit and stricter land-management policies have caused some people to worry there will be a sharp drop in property supplies, and that prices will rise substantially.

"Those fears come as housing consumption is close to taking off. The restrictive measures are greatly stimulating demand," Chan told China Business Weekly.

NBS' figures indicate 83.1 million square metres of property were sold in the year's first five months. That was up 31 per cent from a year earlier.

In Beijing, most units of developments, considered to be in prime locations, were sold within days of going on the block.

There was also an increase, nationwide, in the amount of unsold commercial property between January and May. Some 97.06 million square metres remained unsold, up 2.4 per cent from last year. But the growth rate, however, has significantly decreased from two-digit figures in previous years.

Fewer new developments were launched in China's major cities -- including Beijing, Shanghai and Guangzhou -- compared with last year.

The declining supply of economical housing helped push up the average property price, Jiang said.

Chan predicted housing prices will begin to taper off in the year's second half, as developers will speed up construction to cash in on the current high prices.

"Land supplies are not really being reduced ... because land is currently being held by many government-backed small developers," Jiang said.

"When those properties are placed in the market, the land-supply situation will be eased."