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Housing developers resist price cuts until 'cornered'
By Cao Qian |
March 28, 2011, Monday
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Print Edition
Print Edition
POTENTIAL home buyers waiting for an appreciable drop in property prices may have to bide their time longer than they anticipated. There's no sign yet that property developers are capitulating on price despite a relentless government crackdown on the housing market.
At the recent Shanghai Spring Real Estate Exhibition, considered a barometer of the city's property market for the coming year, exhibitors were fewer, discounts were minor and only 20 percent of residential projects - all in outlying areas - cut their prices.
So it's not surprising that many visitors to the four-day event came away disappointed.
"It just took me less then 40 minutes to go through all the exhibits because major developers like China Vanke, Poly Real Estate, Gemdale Corp and Shanghai Greenland were all absent this year," said Daniel Wu.
Anxious to be among the first to scoop up any bargains, Wu went to the exhibition early on the first day. Like many others seeking to buy homes, Wu assumed that the government's latest curbs on mortgage rates, down payments and multi-home ownership would have forced prices lower. But not so far as he found out.
"It seems to me that the majority of real estate developers are still firm in their prices at the moment," Wu said.
Only about 60 local real estate projects, both residential and commercial, were displayed at the exhibition, which closed on March 20. Nearly 300 projects were exhibited at the exhibition a year ago, according to Soufun.com, the country's leading real estate website.
"While transaction volumes of new homes have been slashed since late January, when a series of tougher government restrictions were introduced, developers still remain very cautious and most of them are taking a 'wait-and-see' attitude," said Gong Min, a research manager at Shanghai Centaline Property Consultants Ltd, operator of the city's largest estate chain in terms of transaction value.
"However, developers will inevitably encounter rising capital pressure if the market remains sluggish," Gong said.
The State Council, or China's Cabinet, added eight new measures to its arsenal of bubble-busters in late January. The more the industry has stood its ground, the more the government has tightened the screws.
Down payments on second homes have been raised to 60 percent of the price from 50 percent, and a ban has been imposed on purchases beyond two homes. Newer residents to the city are limited to owning only one home.
At the same time, Shanghai launched its property tax pilot project, imposing levies of 0.4 percent or 0.6 percent on newly purchased homes, depending on per square meter price of the property.
The crackdown has certainly damped buyer sentiment, but it's done little to bring housing prices lower.
In the first two months of this year, sales of new homes, excluding those built under the city's affordable housing programs, dropped more than 31 percent from a year earlier to 1.95 million square meters. The higher end of the market dived by nearly 54 percent to 112,200 square meters, the Shanghai Statistics Bureau said last week.
A separate report released by Shanghai Uwin Real Estate Information Services Co found that new home sales tumbled 83 percent in February from January to their lowest level since 2006.
Prices, however, remain stubbornly high.
New homes in Shanghai sold at an average 20,625 yuan (US$3,139) a square meter in February and remained well above the 20,000 yuan per square meter threshold so far this month, according to Uwin statistics.
"It is actually not surprising that the market has not seen major price reductions because it usually takes at least three to six months for tightening policies to ripple down to prices," said Zhang Qi, a researcher with China Index Academy.
"First we need to see sluggish momentum among buyers for a while," she added.
The average price declines seen in some cities across China, he said, mostly reflect a larger number of mid-to-lower priced homes coming on the market.
The average price of a new home in Shanghai last month fell 10.6 percent as the proportion of higher-priced properties up for sale also declined, according to a latest report by DTZ, an international real estate services provider.
The average new home prices in six cities, including Tianjin, Wuhan, Chengdu and Xiamen, monitored by DTZ rose an average 1.9 percent, the report said.
Song Huiyong, a research director at Shanghai Centaline, said he doesn't expect to see property developers feeling the pinch and cutting prices until the middle of August at the earliest.
"Unless real estate developers become really cash-strapped, they won't cave in on price in any meaningful way, that is to say, between 10 and 15 percent," Song said. "No developer will be willing to make concessions on their profit until they are really cornered."
A survey conducted earlier this month on the country's major property developers by China Real Estate Information Corp mirrored that view.
Only five out of 110 respondents said they are considering discounts of up to 10 percent on house prices, while 20 developers said they had postponed plans to put homes on the market.
The rest of the respondents classified themselves as cautious, and said they prefer to take a "wait and see" attitude.
At the recent Shanghai Spring Real Estate Exhibition, considered a barometer of the city's property market for the coming year, exhibitors were fewer, discounts were minor and only 20 percent of residential projects - all in outlying areas - cut their prices.
So it's not surprising that many visitors to the four-day event came away disappointed.
"It just took me less then 40 minutes to go through all the exhibits because major developers like China Vanke, Poly Real Estate, Gemdale Corp and Shanghai Greenland were all absent this year," said Daniel Wu.
Anxious to be among the first to scoop up any bargains, Wu went to the exhibition early on the first day. Like many others seeking to buy homes, Wu assumed that the government's latest curbs on mortgage rates, down payments and multi-home ownership would have forced prices lower. But not so far as he found out.
"It seems to me that the majority of real estate developers are still firm in their prices at the moment," Wu said.
Only about 60 local real estate projects, both residential and commercial, were displayed at the exhibition, which closed on March 20. Nearly 300 projects were exhibited at the exhibition a year ago, according to Soufun.com, the country's leading real estate website.
"While transaction volumes of new homes have been slashed since late January, when a series of tougher government restrictions were introduced, developers still remain very cautious and most of them are taking a 'wait-and-see' attitude," said Gong Min, a research manager at Shanghai Centaline Property Consultants Ltd, operator of the city's largest estate chain in terms of transaction value.
"However, developers will inevitably encounter rising capital pressure if the market remains sluggish," Gong said.
The State Council, or China's Cabinet, added eight new measures to its arsenal of bubble-busters in late January. The more the industry has stood its ground, the more the government has tightened the screws.
Down payments on second homes have been raised to 60 percent of the price from 50 percent, and a ban has been imposed on purchases beyond two homes. Newer residents to the city are limited to owning only one home.
At the same time, Shanghai launched its property tax pilot project, imposing levies of 0.4 percent or 0.6 percent on newly purchased homes, depending on per square meter price of the property.
The crackdown has certainly damped buyer sentiment, but it's done little to bring housing prices lower.
In the first two months of this year, sales of new homes, excluding those built under the city's affordable housing programs, dropped more than 31 percent from a year earlier to 1.95 million square meters. The higher end of the market dived by nearly 54 percent to 112,200 square meters, the Shanghai Statistics Bureau said last week.
A separate report released by Shanghai Uwin Real Estate Information Services Co found that new home sales tumbled 83 percent in February from January to their lowest level since 2006.
Prices, however, remain stubbornly high.
New homes in Shanghai sold at an average 20,625 yuan (US$3,139) a square meter in February and remained well above the 20,000 yuan per square meter threshold so far this month, according to Uwin statistics.
"It is actually not surprising that the market has not seen major price reductions because it usually takes at least three to six months for tightening policies to ripple down to prices," said Zhang Qi, a researcher with China Index Academy.
"First we need to see sluggish momentum among buyers for a while," she added.
The average price declines seen in some cities across China, he said, mostly reflect a larger number of mid-to-lower priced homes coming on the market.
The average price of a new home in Shanghai last month fell 10.6 percent as the proportion of higher-priced properties up for sale also declined, according to a latest report by DTZ, an international real estate services provider.
The average new home prices in six cities, including Tianjin, Wuhan, Chengdu and Xiamen, monitored by DTZ rose an average 1.9 percent, the report said.
Song Huiyong, a research director at Shanghai Centaline, said he doesn't expect to see property developers feeling the pinch and cutting prices until the middle of August at the earliest.
"Unless real estate developers become really cash-strapped, they won't cave in on price in any meaningful way, that is to say, between 10 and 15 percent," Song said. "No developer will be willing to make concessions on their profit until they are really cornered."
A survey conducted earlier this month on the country's major property developers by China Real Estate Information Corp mirrored that view.
Only five out of 110 respondents said they are considering discounts of up to 10 percent on house prices, while 20 developers said they had postponed plans to put homes on the market.
The rest of the respondents classified themselves as cautious, and said they prefer to take a "wait and see" attitude.
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