By CSC staff, Shanghai
Published: April 12,2009

China, the media are referring to this phenomenon as the "rebound in the warm spring," and it's seen as largely due to released demand for housing after a one-year downturn. Prospective buyers, with cash in hand, have been waiting for the market to become more attractive. This year, with government policies in place to encourage real estate purchase, some have decided to jump back into the market. High household savings are itching to find a lucrative place to settle.

But "prosperity" in the real estate market may actually be more apparent for some than real, and the media have begun to sniff out facts behind appearances. It's been reported on April 6 that some Beijing developers are creating the illusion of busy business by paying people to stand in line, 50 yuan per person/day. Chinastakes.com staff visited properties for sale in Shanghai and found similar ruses in action.

over the past two years, at present there is plenty of housing for sale, and then some. According to the "Analysis of Shanghai's Real Estate Trend," recently submitted to the Shanghai People's Political Consultative Conference by Guotai Junan Securities, by the end of 2009, there will be a commercial housing inventory of 42.88 million square meters yet to be digested in Shanghai, and it will take an estimated 33 months to get through it based on the 2008 rate, perhaps optimistic now, of 1.3 million square meters/month.

China's land auctions reached as high as 40%. According to National Bureau of Statistics data, in the first two months, investment in fixed asset real estate development increased by a mere 1% over the same period of last year. Developers are reducing the number of new projects, finally showing some commendable caution about the future market.

But in the fourth quarter of 2008, the number of rentals of Grade A office space fell. Rents in Pudong decreased by 15.5% and in Puxi by 8% compared to the third quarter. Shanghai Zhongyuan Real Estate Research reported that since the end of November, Grade A office space vacancies have reached 10.7%, up 3.5 percentage points compared to 7.2% at the beginning of the year.

Beijing Issues Real Estate Rescue, but Doubts Remain

By CSC staff
Published: October 23,2008

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Persistent lobbying from local governments, and big real estate developers, importantly coupled with even more persistent worry over a slowing of domestic economic growth, has pushed the central government to the point where it has decided to launch a program to prop up the real estate market.

In the present economic situation, the government is most worried that the slump in the housing market will lead to a consumption slump that will shrink upstream and downstream industries, and are especially fretting over the possibility of an increase in banks' bad loans.

The Ministry of Finance yesterday cut the contract tax for housing transaction, the stamp tax on property purchase and the value-added tax for land on sales, from November 1. It also reduced minimum loan and down payment rates for residential apartments for self use by first time buyers. Industry insiders expect soon the government will issue more policies, mainly on bank loans and land tax, to help real estate developers.

The contract tax is to be reduced to 1 percent on purchase of the first unit of housing with a floor space of no more than 90 square meters. Stamp tax on individual property purchase or sale will be exempted.

The contract tax is paid by house buyers, and was 3% of the total house price. If the house traded meets the standards for ordinary residential housing, the tax will be cut to 1.5%. The stamp tax ratio will be as low as 0.05% of the total house price.

Cities such as Beijing and Guangzhou charge value-added tax on land on the basis of the total house price, 1% for ordinary housing and 2% for villa.

The Ministry of Finance will also allow local governments to formulate tax and charge exemption policies to encourage housing purchase. 18 cities, including Shanghai and Hangzhou, have already issued policies granting subsidies on contract tax, stamp tax, and transaction tax for property trade.

Operation, contract, urban land use, property, and value-added taxes are charged on property transaction.

Apart from favorable tax ratio, the central bank has also adjusted loan and down payment ratios for housing buyers. To boost domestic consumption, the interest rates on a mortgage for first time home buyers will be cut by 0.27 percentage points. The floor for interest rates would be lowered to 70 percent of the central bank's benchmark rate. The lowest down payment ratio has been reduced to 20%. Meanwhile, interest rates for housing fund loans of all types have been reduced by 0.27 percentage points respectively.

But a lowered floor for loan interest rate doesn't mean banks will necessarily apply the floor rate. In the current economic climate, banks are sure to be more conservative in granting house mortgage loans, and the interest rates for house loans will change with the benchmark interest.

Disputes rage over the government's bailout policy.

Experts worry that bubbles will still exist in China's real estate market and will pop right up if the housing market is boosted by the government.

But many others believe that, under current circumstances, these measures are not going to stem slumping housing prices. They argue that consumers will continue to wait and see whether developers are going to bring down housing prices even more from what were not long ago ridiculous heights, so the stimulation package may do nothing to stop housing prices from sliding.

Some analysts say the property market has been "extremely evil," that its upstream and downstream impact, on industries such as steel, cement, and the employment of society as a whole, has been excessively bubbly. The government's new policy aims to stimulate property consumption, but not to maintain high property prices. China's internal demand is shrinking as external demand is slumping. This is dangerous, so a soft landing of the property sector is very important.

But many say the current property market downturn is a remedy for the extreme froth of the recent past, and that the main cause of the market "depression" is that current housing prices are still much higher than the purchasing power of ordinary buyers. These analysts believe that government interference will stop the market's self adjustment, resulting in higher prices for all to pay.

A property industry insider thinks that despite the bailout policy, housing prices will continue to drop and will bottom out in the next year, as current prices far exceed purchasing power and that speculators who bought houses earlier are selling off.

Some analysts say whether the bailout policy will work or not is still uncertain. Under the current macroeconomic situation, consumer confidence is very hard to restore.

Yi Xianrong, professor at the Chinese Academy of Social Sciences, believes this time the Ministry of Finance has made different policies for house consumers and for house speculators, and is focusing on improvement of residents' living condition, meaning the government will continue taking measures to curb the bubbles in the real estate market.

But Yi added that if current housing prices don't come down, the government's favorable policies will not work.

Shanghai's abrupt action

Following the central government's move, Shanghai swiftly launched 14 measures to support the local property market. From November 1, 2008, to December 31, 2009, people buying or selling housing will enjoy the following favorable treatments:

1. Contract tax rate cut to 1% on an initial purchase of housing with a floor space of more than 90 square meters.

2. Stamp tax exemption on personal housing purchase or sale.

3. Value-added tax exemption on land of personal housing sale.

4. Loans provided to buyers purchasing housing for self use for the first time. The floor for the loan interest rate can be 70% of the benchmark loan interest, with minimum down payment reduced to 20%.

5. Loan interest rate reduction of 0.27 percentage points for housing fund loans.

6. Operation tax exemption for the trade of housing purchased more than two years before.

7. Individuals selling their own house purchased more than two years before don't' need to pay personal income tax on it.

8. Maximum housing fund loan raised for each individual buying first housing for self use from 200 thousand yuan to 300 thousand yuan. Maximum housing fund loan for each family is 600 thousand yuan.

9. Housing registration fee exemption for individual's purchase of ordinary housing, and commission exemption on individual's purchase and sale of ordinary housing in stock.

In Shanghai, Falling Housing Lending Mirrors Falling Real Estate Market

By CSC staff, Shanghai
Published: February 19,2009

Personal housing lending in Shanghai has been dropping month by month. According to a report released by the Shanghai Banking Regulatory Bureau on the real estate market and real estate credit in Shanghai in 2008, housing credit growth of domestic and overseas banks in Shanghai was 14 percentage points lower for the year.

By the end of last year, the commercial housing loan balance of domestic and overseas banks in Shanghai totaled 593.56 billion yuan, an increase of 19.32 billion yuan over the beginning of 2008. The growth is 38.692 billion yuan, or 2/3, lower than the growth in 2007. Housing lending growth in the first, second, third, and fourth quarters of 2008 stood at 13.278 billion yuan, 8.692 billion yuan, 2.709 billion yuan, and –5.359 billion yuan, respectively, dropping quarter by quarter.

Among all housing lending, development loans for residential housing grew slowly while those for commercial building grew faster. At the end of 2008, housing development loans in Shanghai totaled 215.395 billion yuan, an increase of 8.994 billion yuan over the beginning of the year, but 2.66 billion yuan lower than the growth in 2007. Of that total, property development lending dropped by 3.25 billion yuan from the beginning of the year, while residential housing development lending increased 3.013 billion yuan, 1.659 billion yuan higher than the increase in 2007. But since August last year, residential housing development loans have seen negative growth for five straight months. Commercial development lending grew by 11.345 billion yuan over the beginning of 2008, 4.83 billion yuan higher than the growth in 2007.

Personal housing lending growth in 2008 was lower than it in 2007 due to low turnover on the market. In Shanghai personal housing lending totaled 310.769 billion yuan at the end of last year, 8.89 billion yuan up since the beginning of the year, but 34.599 billion yuan lower than the increase in 2007.

Inventory housing lending grew by 12.361 billion yuan last year, 1.028 billion yuan higher than the growth in the previous year. Lending for newly constructed housing dropped by 3.471 billion yuan, 35.627 billion lower than the growth in 2007. On the other hand, growth of housing lending to non-residents and foreigners reached 5.607 billion yuan, higher than that to local residents, totaling 3.283 billion yuan.

At the end of last year, Shanghai's non-performing loan (NPL) balance totaled 6.169 billion yuan, an increase of 1.036 billion yuan over the beginning of the year. The NPL ratio grew by 0.15 percentage points to 1.04%. The quality of personal housing lending has been well controlled. Non-performing personal housing loans totaled 1.872 billion yuan at the end of last year, 254 million yuan lower than at the beginning of the year, and the NPL ratio stood at 0.6%, 0.1 percentage points lower than it at the beginning of the year.

Shanghai's real estate market entered a downturn in the second half of last year. Despite signs of rebound in December led by stimulus policies of the central and local governments, housing prices look to continue to decline.