Smog envelops a construction site in Beijing

Ruchir Sharma is head of global emerging markets at Morgan Stanley Investment Management and he has written a major article on the growth of China.

His opinion seems to be that China has simply grown too big to keep expanding at the 10% rate it has sustained for 30 years, and is likely to slow to 8% at best next year and for the foreseeable future.

He writes: For the first time since the Chinese housing market was fully privatized in the late 1990s, a coordinated real-estate downturn has set in across all major provinces. The feeding frenzy of rising prices and increasing demand has given way to a vicious cycle of falling prices and slowing demand.

Housing is increasingly unaffordable, as property prices doubled between 2000 and 2007, and authorities began raising interest rates last year in an attempt to prevent overheating.

Still, for much of this year, developers have continued building with abandon. . . .

Now there is widespread anecdotal evidence that a price war is breaking out from Beijing to Shenzhen.

The full account, which is much, much more, and somewhat gloomy reading is HERE.
Source: Newsweek

Sluggish sales in real estate

After months of steely resistance, Chinese property developers have finally accepted the inevitable and are cutting prices to boost falling sales.

Whether the move succeeds in putting a floor under the market will help determine the fate of the economy over the coming year.

Real estate accounts for 24% of China’s fixed-asset investment and is crucial not only for domestic steel makers but also for global producers of myriad construction inputs such as aluminum and copper.

Jonathan Anderson, a UBS economist in Hong Kong said he expects property and construction activity to stabilize and rebound in the first half of next year.

But many developers, harried by declining sales and financing constraints, are less optimistic.

Prices in major cities such as Shenzhen have plunged by up to 40%.

Average property price inflation in 70 large Chinese cities slowed to 5.3% in the year to August from 11.3% in the year to January.

For some developers, selling unsold homes at a discount is their last hope to survive.
More on this HERE.
Source: Reuters

Changes in property rules suggested

Economic growth should not be overly dependent on the property sector, warns a report from the Chinese Academy of Social Science (CASS).

The report followed the CASS’s investigation into the US subprime mortgage crisis in June. It suggested  the government should rethink the development of the real estate sector, and clarify their role in the market.

Local governments used to bank on the real estate sector for economic growth and land transfer fees were regarded as the main source of local fiscal income.

Statistics from the National Bureau of Statistics show that investment in the real estate sector last year reached RMB2.53 trillion yuan ($370.13 billion), contributing 10.25% to the country’s GDP.

The report suggested that the government reform the housing fund management system and establish housing mortgage banks and companies dealing in securities to back housing mortgages.
Source: China Daily

Real estates sales slacken

The Chinese government may consider easing strict controls to give the stagnant property market a much-needed boost, the 21st Century Business Herald has reported.

The China Real Estate Association (CREA) recently called on the government to shift its policies from ’strict’ to ‘moderate’ control on the property market.

The proposal appealed for local governments to be allowed to help the property market at their discretion, lowering taxes in real estate trading, encouraging housing needs for improving living conditions, and strengthening the industry’s early warning system.

Gu Yunchang, vice-chairman of China Real Estate & Housing Research Institution said policy changes were necessary.

“Those policies were made at a time when the property prices were skyrocketing,” Gu said. “Things are just the opposite on the market now.”

But Yi Xianrong, a researcher at the financial research center of the Chinese Academy of Social Sciences, said the current sluggishness stemmed from developers’ own bad judgment of the market situation; therefore they should take responsibility for the consequences.
Much more on this HERE.
Source: China Daily

Real estate China

A Ministry of Commerce circular states the power to approve foreign invested real estate projects has been delegated to the provincial level. The new approach is intended to raise the efficiency of the application process.

Since 2006, circulars have been issued by several government authorities, especially the Ministry of Commerce, that are directed at strengthening the supervision of foreign investment in real estate.

One aspect of this supervision has been the requirement that all new foreign invested real estate enterprises be reviewed and filed with the Ministry of Commerce at the national level.

This presented the national level office of the Ministry of Commerce with an increasingly unwieldy workload.

Now, even though a filing is still required with the national level Ministry of Commerce, substantive responsibility for reviewing and approving the application has been put into the hands of provincial-level authorities. This should speed up the process.
Source: Mondaq