Flat sales

Opinion remains divided over
the state of the property market

Flat sales

Affordable housing...

Divorcees, philanderers, and cohabiters. Believe it or not, these are the people giving hope to China’s property industry.

After months of laggard sales, the largely frozen property market seems to be heating up again. In the first quarter of this year, the volume of real-estate sales rose 8.2% from a year earlier to 113.09 million square metres, according to the National Bureau of Statistics.

The reason for the improvement? If you ask Professor Dong Fan, director of the real estate research centre at Beijing Normal University, it is a sign of the country’s new social freedoms: “First, you have the divorcees. The divorce rate in China has never been higher. In theory, getting a divorce would require one of the parties to shop for a new home. Secondly, the number of cohabiting couples has also gone up significantly. Young single Chinese usually live with their parents before getting married. But with cohabitation, they have to move out and buy a flat on their own. And finally, there are those who are having extra-marital affairs. Many of them will need one, two, or more homes for their mistresses.”

Though Professor Dong’s theory has yet to be proven statistically, the reality is that property sales have started rebounding across the country. Reports from Beijing, Shanghai, Shenzhen, Chengdu, Hangzhou and other cities point to increased sales in March.

Analysts attribute the recent rally to pent-up demand. Buyers were reluctant to jump into a falling market. But with the recent government stimulus measures – as well as lower interest rates, lower transaction costs and lower downpayment requirements – affordability has improved enough that more buyers are ready to re-enter the market.

Property prices remain well below their highs, but may have started to stabilise. The statistics bureau says the average housing price in 70 Chinese cities rose 0.2% in March from February. That is the first gain after seven consecutive monthly declines, though the price index still remains 1.3% below its level last March.

After almost a year of sluggish sales, real estate developers are, to put it mildly, elated by the more positive signals. Agile, a mainland property developer (see WiC6), even raised its sales target by 38% to Rmb16 billion ($2.3 billion) in light of the recent rally.

Despite the more upbeat mood, other industry observers remain sceptical. Cao Jianhai, professor at the Chinese Academy of Social Sciences, a leading government think tank, said the current rebound is unsustainable. He reckons that the recent increase in sales is largely a result of a flood of new liquidity rather than real demand.

According to Cao, there has been fraud too. Preliminary government investigations have turned up numerous examples of real estate developers using fake mortgages to offload apartments on to the books of state-run banks, which have been under pressure to increase lending to boost the economy.

A recent biannual Beijing housing fair was said to have attracted 150,000 visitors, and led to Rmb3.1 million worth of contracts being signed, says China Daily. But CCTV, the state-owned television station, found that many visitors to the housing fair were actually hired by local property developers to pose as buyers, and had been offered Rmb50 for every “fake contract” signed. The aim was to create a bustling scene to lure prospective buyers.

In the medium term, Cao expects average urban residential property prices to fall by as much as 40-50% over the next two years (from their levels at the end of 2008). “Prices may not fall in the near term but I expect a collapse starting next year.”

Similarly, in an interview with the South China Morning Post, Pan Shiyi, chairman of Soho China, said: “I don’t know [when the market will recover]. Property prices keep going down… Developers should not have any fantasies about the market outlook.”

In light of this grim forecast, rather than being alarmed by the rising divorce rate, perhaps the Chinese government, should look to it as a source of economic growth?

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.