The continuous shrinking property transaction and dropping prices prompt more people to hesitate and even withdraw their decision to buy properties.

Industry statistics show that the ratio of sold floor area to finished floor area in Beijing, Shenzhen, Guangzhou and Nanjing has below 0.7, putting more pressure on the property price.

Some customers’ eager to get refunds, however, are mostly in the mid-end apartments range which are in poor locations. For high-end apartments or villas, the price remained comparatively firm.

In early June, Beijing municipal commission of urban planning launched a new standard for construction, limiting the average floor area of each apartment to no more than 100 square meters.

Jason Leow, deputy CEO of CapitaLand, China’s property market is now seeing a big shift from investment-orientated buying to self-use buying. This requires real estate firms to pay much more attention to their product’s quality and services.

Jason Leow said, ‘In such a market with a wait-and-see atmosphere, we would be more critical about the location and quality of our products,’

CapitaLand planned to launch three residential projects in Beijing this year, all in the capital’s very urban areas.
Source: English People’s Daily Online

This is the sort of situation that gives developers an attack of the vapors. They need to take two Aspirin and have a nice lie down before considering the implications.

On April 7, 2008, the State Administration of Taxation issued a circular governing provisional Corporate Income Tax payment issues for real estate developers , which is retrospectively (note that word for it gives one pause) effective from January 1, 2008.
It applies to the following enterprises:

(i) Chinese resident enterprises that are engaged in the real estate development business, including both domestic Chinese enterprises and foreign-invested enterprises; and
(ii) Those enterprises that make monthly or quarterly provisional CIT payments based on actual profits.

The provisional CIT payable is the result of multiplying such profit by the CIT rate (standard rate of 25% from January 1, 2008). That may be a little difficult to follow but take it that it does not make the life of a real estate developer any easier.

After the final completion of a project that has been pre-sold, the prepaid CIT will be reconciled with the actual CIT payable, based on the project’s actual profits.

In other words when you have made your profit the tax that can be demanded will be worked out.

For typical real estate projects, the profit rate shall be:

Not lower than 20%, for projects located in provincial capital cities as well as certain cities in special administrative regions and other designated cities.
Not lower than 15%, for projects located in second-tier cities.
Not lower than 10%, for projects located in other areas.
For low cost residential, the profit rate shall not be lower than 3%.

For real estate developers this does not bode well. Indeed, it bodes ill. Much, much more on this in a Mondaq special report which you can find by clicking HERE.
Source: Mondaq

It is easy to get confused as the heading shows; almost impossible to see an overall pattern. In April non-residential property prices grew 6.5%, rate of growth down 0.4 percentage points.

So non-residential was going up, but not as much as it used to. This decline in the rise is patchy. And there are places where it is all decline.

According to a report released by Centaline (China) Shenzhen-Hong Kong Property Research Center, the average housing price in Shenzhen’s six districts dropped to RMB11,143 per square meter in May, down 23% from a year ago and 7% from April, on Tuesday. Those are substantial drops.

Can Shenzhen can look forward to boom times again?

Wang Shitai, brand manager of Sunstars Real Estate in Shenzhen said, ‘Despite the rise in transactions, I’m not optimistic about Shenzhen’s housing market in the near future.
‘Developers will have to slash prices further in order to boost sales to maintain their businesses. Many have offered prices as low as RMB5,500 per square meter in order to attract enough buyers.’

China Overseas Property, a major real estate developer in Shenzhen, launched a new housing estate, Xi’an Huafu, in Bao’an District on May 31, with opening prices of RMB5,500 per square meter, the lowest in the district this year.

The developer launched another project, Kangcheng Guoji, in early June, and set the opening price at RMB4,988 per square meter.

So, no, the boom days are not likely to return in the near future. And, yes, this is what the government was working towards.

Guo Shiping, an economics professor at Shenzhen University, said ‘When prices drop further and more investors fail to pay the mortgages, all of them will suffer.’ That is what happened with the sub-prime crisis in the United States. Only in China it will not be such a disaster.
Source: Window of China

The headline comes from the International Herald Tribune which is not normally given to gloomy stories.

It reports that although official figures show investment in property rose 32% in the first four months from a year earlier, developers are worried as bank loans dry up and the cost of tapping other sources of funds rises.

Falling home sales are a particular threat to developers, who typically rely heavily on cash from the sale of unfinished projects to pay for operations and expand.

According to the China Index Academy, which is affiliated with SouFun.com, a leading real estate Web site, the number of residential transactions in Beijing fell 13.7% in April from March and was down 56.4% from a year earlier.

Not a happy scene.

Zhang Xinming, chairman of Walter Asia, a developer based in Jiangxi Province, said maximizing cash flow was now his main strategy.

Walter Asia has accelerated the development of land that it had bought cheaply, hoping to cash in quickly.

It is also shifting its focus from high-end housing preferred by investors to more affordable apartments that are still in demand by regular home buyers. Which is what the government wanted to happen.

Zhang Xinming said, ‘The ability of Chinese developers to get through the harsh winter is growing.’
Source: International Herald Tribune

China will create five new ’super ministries.’ The goal of this move is to streamline the bureaucracy, clarify conflicting responsibilities, and curb corruption.

1. The National Development and Reform Commission — NDRC — will focus on macroeconomic planning, paying particular attention to price controls and the management of energy policy.
2. The Ministry of Finance will reform and improve its management over budget and taxation.
3. The People’s Bank of China will strengthen the system of monetary policies and improve the mechanism of exchange rate formation.

The State Council also plans to strengthen the coordination amongst the three above-mentioned bodies,

One area that has not been addressed is the lack of supervision over the NDRC. The three bodies are not on equal footing. The NDRC will set annual control targets to coordinate monetary, fiscal, and industry policies, and this means that it will remain a key player in the State Council.

The Ministry of Construction change to the Ministry of Housing and Urban and Rural Construction was according to Forbes.com, in order to emphasize its role in building affordable housing for low-income families in China. Our illustration is of elderly low cost housing in Chongging.

As provincial governments and city councils assume powers the NDRC had in the past, the decision-making process will become more decentralized. This may bring about positive changes, as it should clarify which level of government is responsible for interpreting laws and regulations and approving projects. It is equally possible that the transition of power to the local level may have a negative impact on construction in areas of China.

The new organizational scheme places the Ministry of Construction’s urban public transport management functions under the new Ministry of Transportation.

The aim of the restructuring and creation of ’super ministries’ is to improve regulation, rule of law, and adherence to a market-based economy while simultaneously curbing corruption, decreasing pollution, and cutting down on turf wars between ministries and disparate sectors of the bureaucracy. All of these are long-standing objectives of the central government.
Source: Mondaq