Not so hot property

The great debate: are house prices falling or not?

Not so hot property

Are prices shrinking too?

All happy families are alike, Tolstoy once wrote, but each unhappy family is unhappy in its own way. What the Russian novelist wouldn’t have predicted is that plenty of Chinese families would one day be miserable for a very similar reason – namely, not being able to afford a house.

Ni Tao, a columnist at the Shanghai Daily, says housing is now arguably the biggest source of distress in China, as steep price rises make home ownership a distant hope for the average buyer. Although the government maintains that property prices have now departed from their upwards climb – the official price gauge, an index of the top 70 cities, has edged up only 1.5% year-on-year – many remain sceptical. “Can you believe it? Surely, the decimal point was misplaced,” was one online comment.

A glance at property ads in Shanghai, for instance, hardly reveals a declining market. The city’s housing index was also up overall for the ninth straight month in May with prices rising in more than half of areas monitored. Prices for homes in prime locations – including five downtown districts in Puxi and the part of Pudong New Area within the Inner Ring Road – remained firm, rising an average 0.34% last month, with Huangpu District nudging up higher at 0.62%.

Generalisations on prices nationwide are fraught with difficulty. The average price of a newly-built unit in Beijing dropped to Rmb23,467 ($3,400) per square metre, a month-on-month decrease of 7.2%, and 21% lower than the same period last year, according to, the largest property website in China.

Oversupply is part of the problem. In some parts of the city, swathes of apartments built in the last two years remain unsold. The Beijing Morning Post reported that Tongzhou, a satellite town near Beijing, has 20,000 unsold units, or an equivalent of seven years of supply, on the basis of 3,000 units being sold a year.

Generally, the sales data reports widespread reductions in transaction volumes, but not similar falls in unit prices. Perhaps that is only a matter of time. Some developers are already offering discounts to drive sales. Those with portfolios in high-end developments in first-tier cities are often cutting prices most aggressively. Experts say oversupply is often greatest here, plus the government is focusing its austerity measures at the higher end, where speculation is more of a factor. Another motive is that higher prices at the top end drag up the ‘overall’ average sale price in the indices, hence the government attention.

Developers’ land-buying activity has also slowed, suggesting cautiousness about the immediate outlook. Sales of land for residential development fell by 14% year-on-year during the first five months of this year. Beijing and Shanghai were hit hardest, plummeting by 84% and 44%, respectively, says Shanghai Securities Journal.

That’s bad news for local government finances. As WiC has written in the past, local governments rely heavily on land sales to property developers for a significant portion of their revenues. Another complicating factor: the central government has ordered that at least 10% of net revenues from selling land plots be channelled into affordable housing construction (see WiC99).

It’s all enough for the Wall Street Journal to run the headline: “Property bubble in China deflating”.

But there are still plenty of commentators (and not just developers and their brokers) who think that prices are not going to come down too much. They point to longer-term fundamentals like rapid urbanisation and rising income as drivers of the housing market.

Then there is pure self-interest. Stan Abrams, a Beijing-based intellectual property lawyer, recently wrote in his blog China Hearsay that housing prices are not going to drop drastically because government officials at all levels are property owners themselves. With their own investments directly at stake, “it’s a fairly widespread belief that ‘interested officials’ will simply not allow prices to drop too much,” Abrams observes.

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