September 24,2009

Real Estate Development and Investment Expected to Grow

By CSC staff, Shanghai

Recent data from the National Bureau of Statistics show that nationwide new construction area in the first eight months totaled 631 million square meters, and that new construction area in August was up 14% over the previous month, the only month-on-month increase in August since 2000.


The growth of new construction area shows developers' expectations for the future, and investment growth in July and August reflects a general upward trend by developers. In August, real estate development and investment grew by 34.57%, year-on-year. Investment is accelerating.


Domestic loans for real estate development in August reached 86.032 billion yuan, down compared to June and July, but still at a historically high level, indicating that real estate development and investment will further accelerate from September to November. The real estate industry is a key industry supported by governments in its drive for both investment and consumption.


The increase in construction area and land prices is also reflected in the substantial rise in land transfer revenues to local governments. Revenues in Shanghai through September have so far reached 52.61141 billion yuan, of which 29.19147 million yuan comes from the selling of residential lands, both numbers ranking tops in the nation, far ahead the two previous years. Public land transfer payments in Shanghai in 2007 totaled 48.1294 billion yuan and 39.81842 billion in 2008.


Data from the Shanghai Municipal Planning and Land Resources Authority show that residential land in Shanghai this year is expected to reach 1597 hectares, up 5.7% from 2007 and 16.0% over 2008.


Many analysts are saying, however, that the increases in land and housing prices have overreached purchasing power. Recently, some real estate projects have been hard-sells despite promotion programs. This atmosphere will soon spread back to the land market, which will face cooling pressure after October.


Shanghai's land market in the first eight months showed a pattern of doldrums-boom-decline. Data show that land area, turnover, and turnover premium in the residential land market peaked in August.


Problems accompanying the huge amounts of land entering the market are land enclosure and idle land. It is noteworthy that the number of real estate trust products has begun to fall. Only nine were released in August, down 42.86% over the previous month.


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