August 09,2009

Crazy Housing Prices May be Coming down Again

By Niu Zhijing, Shanghai

The crazy rising prices in China's real estate industry are entering a subtle period. Although housing prices are still moving up, volume slowed in July. Unsurprisingly, perhaps, buyers seem to be retreating back into their "watch and wait" mode.

After the China Banking Regulatory Commission (CBRC) announced it would tighten lending for real estate, Ministry of Housing and Urban-Rural Development officials noted that they would monitor the risk of rising housing prices in large cities. China Information, a newspaper under the National Bureau of Statistics, published an article titled "Worrying about Skyrocketing Housing Prices," which points out that given the current circumstances, ever rising prices are becoming an obstacle for urban residents.

From early this year, housing prices in China's eastern cities have increased by more than 15%. In Shenzhen in June, prices reached 14,197 yuan/square meters, up 29.4% in only 4 months.

The government has great expectations for the property market to increase domestic demand, but soaring prices look to be counterproductive. Decision-makers worry that irrational prices will lead to froth, and the eventual burst of both prices and consumer confidence.

According to a Shenzhen survey of nearly 6,000 people, about 75% said they would not buy a house any time soon, and 10% were choosing to wait and see. As for their reasons, more than 60% said prices are too high, 20% think the current market is very crazy and worry about being trapped, and nearly 15% are waiting for the introduction of government policies to regulate prices.

Local governments are also paying attention to real estate prices. Yu Zhengsheng, secretary of the Shanghai Municipal Communist Party Committee, says housing prices are too high in the city, and the supply should be increased. Yu says that in the second half of this year, Shanghai will "attach great importance to the real estate issue to maintain stable and healthy development of the market."

In July, Beijing launched action against illegal and irregular cases, such as projects that do not open as scheduled and lack on-line subscription.

Past experience with China's real estate market suggests that credit policy, not supply, is the decisive factor in the rising or falling of prices. The same is true this time.

Price rises slowing soon will be because CBRC is tightening audits for the second housing loans. The policy has slowed down direct support from banks, and real estate speculators rely on the low down payments and high credit to invest. Last month, CBRC Chairman Liu Mingkang listed the real estate market as "a new risk point" in need of special precaution.


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