Real Estate Reaches Another Turning Point

Real Estate Reaches Another Turning Point

04-08 14:13 Caijing

Capital raised on the secondary market will be far from enough to ease developer’s financial strains. Where will the real estate sector, already the pillar of China’s economy, find its driving forces going forward?

By staff reporter Hu Wen

There has been much buzz about housing price drops in a number of cities and possible relaxation of home-purchase restrictions over the last two months.

In late Feb. 2014, Dexin, a Zhejiang-based real estate developer, cut the price of a property project it operated in Hangzhou, the provincial capital of Zhejiang, by 3,000 yuan per square meter. Around the same time, Guangdong-based developer Agile reduced the price of its Xinghewan project in Changzhou, Jiangsu Province by 5,000 yuan per square meter.

By March, Poly, a large state-owned real estate developer, rolled out a promotion campaign that allowed homebuyers to make down payments of just 10 percent on three projects it ran in Guangzhou. Property price drops also appeared in Qingdao, a coastal city in Shandong Province, and Nanjing, the provincial capital of Jiangsu. A property project in Qinhuangdao, Hebei Province, even took a 40 percent nose dive. The string of news of price drops created a panic in the housing market.

Zhang Dawei, research director at Centaline Property Agency, told Caijing that the last couple of months have seen price corrections as the arm wrestling between homebuyers and sellers intensified considerably compared with 2013. The primary cause behind this, according to Zhang, is the credit crunch the domestic economy experienced in early 2014.

A survey of 69 bank branches in 22 cities by Cric Consulting in Feb. 2014 showed limited availability of mortgage credit and increased mortgage rates nationwide. At the time of the survey, only two banks were offering concessional lending rates to homebuyers. Around 40 percent of the banks surveyed had raised their mortgage rates for first-time home buyers by 5-15 percent compared with late 2013; some banks even hiked their rates by 20 percent. In cities like Guangzhou and Huizhou, the mortgage rate for second-home buyers stood at 1.2 times the benchmark interest rate. 
 
Talks of a housing bust are gaining traction as the market expects no credit easing any time soon. Nationwide, real estate trade volumes are substantially lower than those of the same period in 2013.

Home sales, while remaining flat in first- and second-tier cities, are polarizing among third-tier cities. To speed up capital turnover and recoup investment, many projects have cut prices to boost sales.

The one piece of good news for domestic developers comes from the capital market: developers are gaining access to various financing channels after three years of waiting. Join·in (Holding) Co., Ltd’s and T.B Infrastructure’s refinancing plans won administrative approval this March. Greenland’s plan to seek backdoor listing by acquiring Jinfeng Investment was also given the green light. In addition, Vanke’s application to convert its Shenzhen-listed B shares to Hong Kong-listed H shares finally received regulatory approval after a one-year wait. Moreover, qualified real estate developers are expected to be among the first batch of domestic companies that are allowed to issue preferred stocks.

All those policy signals have slightly eased the tension in the housing market. However, capital raised on the secondary market, which is only a small fraction of the size of total bank credit, will probably be far from enough to ease developer’s financial strains.

Meanwhile, a number of important questions remain unanswered. For instance, will home-purchase and bank-lending restrictions, which have been implemented for years, be abandoned by the government as downward pressures build up on the market?

Also, where will the real estate sector, already the pillar of China’s economy, find its driving forces going forward? Will its impetuses be found in affordable housing, China’s new-type urbanization, or the much-talked-about integration of Beijing, Tianjin and Hebei Province? Or must it wait for another round of monetary easing just like before?

Caijing found that industry insiders aren’t optimistic about the domestic real estate market at the moment.

Full article in Chinese: http://magazine./2014-04-08/114076814.html