It’s been a rare article in the past year that hasn’t started out with requisite doom and gloom. This issue of FOCUS, however, is fortunate to have mostly good news to report. The Chinese residential property market is back in a big way, and that’s good news for developers, real estate agents and the economy as a whole. For the most part, it’s also good news for individual homebuyers.
First, after what looks in retrospect like a short hiatus – especially compared with developed economies – mainland housing transaction volumes began to surge in May of this year, rising by factors between 45% and 259% in eight surveyed cities. Prices quickly followed suit. In September, China’s largest property developer Vanke raised its housing start target by 45% to 5.85 million square meters, up from 4.03 million square meters, posting a healthy US$366 million first half profit on the way.
"Market supply is expected to grow substantially at the end of 2009. By that time, the issue of insufficient new housing supply will be alleviated," said Yu Liang, the company’s president.
However, while China needs more and better housing, it doesn’t need another speculative bubble. Given the relative lack of alternative investment options, and lack of people who understand more complex investment products, houses are not only attracting tenants but also speculators who don’t feel they have anywhere else to put their money.
This helps explain the odd phenomenon of sold-out new developments in second- and third-tier cities that are largely devoid of tenants. The easier the government makes it for these speculators to gamble on growth, the less sustainable that growth is. Indeed, Beijing is already warning that it may take steps to curb credit for second-home investors and would-be landlords.
When it comes to housing, though, it’s safe to take a long view. China’s growth and urbanization provide a strong fundamental base for confidence. It will be some years before demand dries up for affordable housing in China’s cities.
In addition, a little speculation won’t kill the nascent recovery. Unlike in the US, the residential market in China is not characterized by mountains of debt. Net savings rates remain high, and Beijing has not allowed lenders to develop bizarre mortgage structures that confuse borrowers and bankers alike.
This does not mean there is no risk of bad loans – there is – but it does mean that housing can and should serve once again as a fundamental pillar of macroeconomic security and growth.