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Construction and Real Estate Market Overview: November

BritCham / CBBC
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Another month, another set of twists and turns in the saga of China’s housing market.

Government measures to bring down prices and head off the bubble are making headway, as price drops have been recorded in most cities and a further drop of 10-15% is expected over the course of the year. But in a blow to developers, Premier Wen Jiabao dismissed the possibility that market control measures would now be loosened, as he announced that the government’s target was to see prices fall to a ‘reasonable level’.

Developers continue to struggle as sales of new properties nose-dived over the past couple of months and real estate agencies are reporting mass office closures and thousands of lay offs. In October, 177 property agencies shut down in Beijing and there are now more than 120,000 unsold properties on the market in the capital- the highest number in 29 months. Transactions in other cities have slowed so quickly that developers can’t shift properties and have started to offer a range of incentives to sweeten the deal. One property firm in Wenzhou was offering a new BMW to the first 150 buyers of residential flats, as well as other offers like free garages and air-conditioning units.

In further attempts to boost sales, asking prices on units of new housing are being reduced in many first and second tier cities. In Shanghai, this news caused uproar in the city’s Pudong area as owners who had purchased property at previous prices took to the streets in protest at 30% reductions. Adding to the struggle, discounts are spurring potential buyers to hold off on purchases as they expect prices to further fall in coming months.

The real-estate slowdown is also starting to show worrying knock-on effects in other areas of the economy. Local governments are seeing a major source of revenue dry up as land sales fall which could trigger a wave of defaults on debt as they lose a major source of income.  The slowdown is also worrying for the commodities market, where slowing construction weakens demand for concrete, steel, and aluminium. Despite predictions that the creation of affordable new housing would act as a buffer to commodities, this market lost some of its lustre last week as it was revealed that 1/3 of projects are no more than holes in the ground on inactive construction sites. The affordable housing market is an important swing factor in the future of commodities and this news does not bode well for the market.
 
The government needs to ensure property prices fall at a moderate rate in order to avoid detrimental consequences in other sectors, as well as create means to entice developers to invest in new projects. The burning question now is how the wider economy will react to the slowing real estate sector.
 

Photo: Bloomberg

 

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