Monday, October 18, 2021

Will China’s housing market begin a correction?

Written by By Li Hui, CNN

New skyscrapers are popping up all over downtown Beijing and across China. Yet despite the growth in real estate development, there is little sign of the government’s much-feted efforts to control housing prices.

With ballooning debt, high vacancy rates and little available land for new construction, a top Chinese property giant with a combined market capitalization of $80 billion reported in May that its revenue would fall by nearly 6% for the first half of 2018 compared to a year earlier, as all four of its units failed to increase sales.

China Evergrande’s warning followed Zhejiang Xingrun Real Estate’s announcement last month that its 1.1-billion-yuan (181-million-dollar) net loss had more than doubled in the first quarter to 379 million yuan ($57 million), though CEO Ma Xiting touted the group’s latest projects in Zhengzhou, the central city of Henan province, saying it was doing “very well.”

The rise of “second home”

Thanks to record-low interest rates, Chinese consumers are expected to make home ownership one of their top investment goals for 2018, following a year of explosive growth in China’s stock market.

“China has registered such an incredible recovery in home prices that once China turns from a low-rate environment into a high-rate environment, you will see a downturn in the market,” said Gregory Kitabayashi, professor of management at Columbia Business School.

“China is likely to have an overheated housing market. That seems inevitable, but who knows when the government will intervene,” he said.

Li Hui, an analyst at China Dialogue, the online outlet for China’s media, argued that a property price-and-income-driven boom could reignite again by the end of this year after a period of falling prices and new housing supply.

“A new leadership will be in place by the time the market starts to heat up again,” he said.

Housing market becoming unaffordable?

Shanghai, Beijing and Guangzhou may be once again on course to join other Chinese cities in passing their local annual housing price targets of 3-5% growth by the end of the year, said Jason Lui, president of Beijing brokerage CITIC International, during a recent panel discussion at the China Real Estate Exchange Forum.

“The ongoing tightening measures only facilitate home buyers, which is fine. However, new home prices cannot be allowed to keep escalating at such an exceptional pace,” he said.

With 30-60% price growth over the past two years, Lui said, “China’s housing market can no longer be considered as cheap due to relatively high household debt.”

Li Hui agreed, arguing that the new government leadership will likely take a “soft-stroke” approach to reining in the housing market and is unlikely to implement more stringent measures such as a high mortgage debt ratio requirement or a down payment on a property.

“If you have to encourage people to move or to save for a down payment on a home, then you have to curtail the scope of what’s normal, in terms of how much you can buy,” she said.

Instead, the direction that China’s housing market is headed will likely be driven by how developers react to the latest market slowdown and how the company builds for the second half of 2018.

“As long as home prices keep rising, new housing sales will be pushed up — that’s the way to keep investors happy and investors will remain in the market,” she said.

Evergrande, which has a land bank that covers an area roughly the size of Chicago, is scheduled to report its second-quarter earnings on July 25.

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