[photopress:real_estate_Ronnie_Chan_1_1.jpg,full,alignright]If this were not originally published in The Economist one would tend to dismiss it as the outpouring of a sub-editor’s heat enfev’red brain. But this is The Economist which is a journal most commentators consider above petty headlines or comment.
It suggests that the property boom was responsible for most of the serious fortunes created in China. And it allows: ‘Although stockmarket sentiment towards China’s property developers has plummeted, there does not yet appear to be a comparable drop in the prices of flats or rental rates for offices. Price appreciation has slowed but there are no outright declines, at least in the national statistics.
It then says that unofficially, however, there are indications prices in some regions may well be under pressure.
Shanghai. Many developers have retained the list price for units but are offering ‘rebates’ which can take 10% or more off the purchase price. Numerous units are being held off the market in the hope of a recovery.
Shenzhen. Only a year ago was an extremely hot market buyt the average price of flats in the city has fallen by 28% since October. There are reports that the value of some may have dropped by half.
Beijing. Areas around the capital city have been more resilient but the rate of appreciation has clearly slowed.
Explanations for the crunch are not hard to find.
In southern China business conditions have deteriorated, notably for exporters.
The government has tightened credit where it senses property speculation. Rather than build portfolios of stocks, it had become popular in China to purchase multiple flats as an investment, until the government late last year ordered 40% down-payments and imposed transaction taxes on all but primary homes (a policy that, in light of the current distress, is now being reconsidered).
Ronnie Chan, chairman of Hang Lung Properties, one of the leading developers in China, and seen in our illustration, wrote last month that the second half of 2007 was characterised by a ‘land grab’ on the mainland with no price discipline.
As examples, he referred to a site in western China sold at government auction to a competitor for 20 times what he had paid for a similar property the year before; another in Shanghai went for ten times as much. Recovering the cost of the investment would take years, he predicted.
The Economist ended this tale of woe with: ‘Few would be surprised if some of the more aggressive firms do not have the financial strength to survive that long.’
Source: The Economist