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| Make a Fortune in 2008 (II) - Real Estate Market |
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2008-01-18 09:30:15
CRIENGLISH.com |
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In the second half of 2007, a series of measures were taken to rectify the real estate market. [Photo: 21cn.com] "Bankruptcy or lower profits? It doesn't help to lower the profits to just 10 percent when facing this question."
"I negotiated with two real estate developers lately. One is in southern China's Fujian province. The quoted price for the development was 8,300 RMB per sq meter, but the actual price was only 7,800 RMB per sq meter. Then when we began talking price he only asked for 6,200 RMB per sq meter. I estimated that the construction costs for the 31-story building were about 3,000 RMB per sq meter and the price of the land was at least 2,000 RMB per sq meter. If we add in the taxes and other factors the total cost would be no less than 5,800 RMB per sq meter. This means the developer can only make a marginal profit of 10 percent. They told me that their hope was to bring in enough money to maintain their capital chain. The other development I visited was in Beijing and they were going through the same situation." Yang Shaofeng, the chief manager of a Beijing real estate company told "Xinmin Weekly".
In Yang's eyes, the real estate market was kidnapped by 2007's listed companies, and the market was trapped into a dangerous game. Shaken up by the "sub-prime mess" in the United States, the Chinese government finally decided to give a final warning to the industry, a series of measures that are currently being planned and implemented in the real estate industry.
Are the good times over?
If we review 2007's real estate market, all the insiders would agree that "soaring housing prices" sums up the feelings about last year. But now that the government is taking action, many people are wondering whether the prices that have been rising for five years, will drop in 2008?
Shenzhen was the first city to experience a housing price dip. According to reports, in Shenzhen last September, the trade volume for 2nd hand housing dropped by about 36 percent, and prices dropped by about 47 percent. In October, the average price of a new house was 14,797 RMB per sq meter, down 10 percent from the previous month.
In Guangzhou, the statistics from the city's housing management bureau show that the average price of a new house in November of 2007 was 10,433 RMB per sq meter, down 9.9 percent from October. At the same time, real estate trade volume dropped by 41.1 percent.
As a leader in China's real estate industry, Vanke became the first housing developer to announce a price drop. The price for their developments in Shenzhen, Guangzhou and Shanghai dropped by between 15 to 30 percent. This has been seen as a sign that housing prices may soon turn around. Many major real estate companies have now joined in on the low-price campaign. Another shock came when Wang Shi, the chairman of Vanke announced on a CCTV program that "the current market is dangerous" and he advised people to wait 3 to 4 years before buying a house.
Even though some insiders insist lower prices for some developers does not represent the market as a whole, Beijing's skyrocketing housing prices are also showing some flexibility. Some have remarked that many developers are now asking each other whether the good times are over.
"A few days ago, a development in Beijing asked some experts to help them fix the price for their apartments. One expert advised that 'the price will keep going up next year, don't sell now!', but some others told the developer to sell as soon as possible because of the current situation." the developer decided to wait a while and set the price at 23,000 RMB per sq meter. Up to now he hasn't made a single sale.
In today's market, Yang Shaofeng says that because of the current humbling situation it is now much easier for real estate agencies to do business with the developers.
The Beijing government reports that 45 new developments began in the city last November, with an average price of 14,966 RMB per sq meter. This is a drop of 358 RMB per sq meter compared to October. It was the first time in the second half of 2007 for the housing price to drop.
In a survey held by the popular SINA.com portal website 78.5 percent of the 53,502 participants say that they will hold off on their plans for buying a new house for awhile and wait and see what will happen to the market.
The changing media
Falling back from previous reports of an imminent housing price drop now many from the media are claiming the price drop was just a "fake dive". Some people complain that the media changes too quickly, saying that "It was the media who said that the sky-high housing prices would be turned around soon and now again it's them who claim that the time for the drop hasn't come."
Yang Shaofeng admits that there is enough space in the market for developers to lower housing prices. "The quotation price for many developments was as high as 30,000 RMB, but in fact the trading price was only 22,000 RMB. Now many developments in Beijing are offering discounts."
However, Yang says that the price dip has not influenced the consumers. "The price drop was periodic at first. If consumers didn't start buying, the price would be lowered even further. But developers may begin raising the price again when the market improves."
Some analyst say that the "fake drop" belief shows that the media is worried that overwhelming reports about a dip in housing prices may actually slow down the drop.
Meng Qi, the senior analyst for 21st Century Real Estate, tells the reporter: "Financial pressure has caused some developers to lower prices. Feedback from our Beijing agencies shows that customer investment demands are decreasing. And some property owners are planning to sell their investment real estate. But the sellers are not panicking and in this case the prices are not as low as the public had hoped for."
As Cao Changqing from the National Development and Reform Commission has said "the drop in housing prices is a trend, but whether the trend is temporary or long term can only be determined by time."
Translated from "Xinmin Weekly" |
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