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The bubble that hasn't really burst

Publication Date : 18-10-2012

 

Nobel laureate Mo Yan wanted to buy "a big house" with his US$1.2 million prize money.

Not a bad idea since China suffers from a paucity of investment options, including a volatile stock market that has fallen by over 60 per cent in the past five years.

But the writer was soon jolted back to reality when a friend reminded him that his cash bonanza can buy only a 120 sq m flat - about the size of a five-room HDB flat in Singapore - in parts of Beijing. That works out to be around 50,000 yuan ($8,000) per sq m.

His frank comments, published by Xinhua news agency on Sunday, have sparked a heated discussion about China's still-elevated housing prices - and whether the masses should be resigned to this fate.

Netizens say Mo's comments "reflect the harsh reality" that property is beyond the reach of most Chinese.

"If he cannot afford a place, what more ordinary folk?" asked one microblogger nicknamed "waves even without wind".

"Are Beijing's big homes only built for coal mining bosses, speculators and corrupt officials?" he added.

But a few property tycoons and analysts have weighed in to remind Chinese home-buyers to lower their expectations.

Urban residents no longer have the right to live in big homes, argues Wang Shi, chairman of property giant Vanke in his new book.

In Hong Kong or Tokyo, residents are already settling for homes of about 60 sq m.

"What more in China, where there is limited land and plenty of people?" he was quoted by the media as saying on Tuesday.

Vanke is building apartments of almost 15 sq m each - roughly the size of a parking space - in southern Dongguan city.

In spite of government curbs to cool the overheated market since 2010, prices this year have not fallen by the 25 per cent levels predicted by more bearish economists like Andy Xie.

It is unclear how much average prices across the country have changed since the curbs kicked in but, for the first eight months of this year, they rose 6.6 per cent compared with the same period last year.

And last month, prices in 10 key cities, including Beijing and Shanghai, were only 1.4 per cent lower than they were a year ago.

On a monthly basis, they rose 0.22 per cent from August to 15,573 yuan per sq m - the fourth straight month of increase, data provider China Real Estate Index System reported.

In addition, real estate magnate Ren Zhiqiang is predicting a big rebound in prices by March.

By then, property developers' inventory of unsold units would be more or less cleared, while the lag in new supply could push prices up, he told Xinhua.

Demand for housing remains high. Many young Chinese still want to buy more than one apartment in big cities to house their parents and their own families, said Real Estate Research Centre director Dong Fan.

"So the high growth rates in China's property market have not ended yet," he said.

Indeed, the property market already looks to be heating up again, as pent-up demand from millions of prospective home- buyers drove sales in China's 54 largest cities to almost 60,000 units last week.

This was more than double that of the previous week, the Shanghai Securities Daily said. Home sales in Shanghai soared 267 per cent in the same period.

Anticipating a recovery, six developers bought land worth 24 billion yuan last week. These included state-owned giants such as Poly Real Estate Group, which snapped up two of the most expensive plots in Shanghai and central Changsha.

Even oil titans PetroChina and China Petroleum & Chemical Corporation were reported to have recently bought land in downtown Beijing.

These moves, based on forecasts that housing prices will soon rebound, reflect the state giants' profiteering motives, said the Global Times in a commentary on Tuesday.

Some analysts have cheered this revival in land and home sales as a sign of green shoots in China's slowing economy.

But Professor Yi Xianrong of the Chinese Academy of Social Sciences warned that high housing prices risk crimping domestic spending - which the government wants to promote as a key driver of growth - if families have to save up even more to buy homes.

And "when prices reach a certain height, all kinds of vested interests will try to block housing reforms, be it (local) governments, banks, speculators and others", he added. "If prices are not adjusted to a reasonable level, this could severely damage the economy."

 

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