China property: Hot market

Source : Straits Times – 16 Dec 2009

Mr Sam Goi may be best known in Singapore for his Spring Home brand of popiah skins, but in China he is making a name for himself by building high-quality homes for the booming property market.

The ‘Popiah King’ sold 287 condominium units in Yangzhou, in eastern China’s prosperous Jiangsu province, in just one day when the first phase of his Linglong Wan development was launched in mid-September.

The apartments built by Mr Goi’s property arm Junhe Holdings were priced at 500,000 yuan (S$102,000) for a 80 sq m unit.

This was a good 50 per cent more than the units offered by Junhe’s competitors.

But in a red-hot market where buying a home has become a national obsession – residential prices across China hit a 16-month high last month – local buyers plonked down cold hard cash on the spot.

China’s property market has staged a breathtaking rebound, with property sales surging 87 per cent to 3.6 trillion yuan so far this year.

Warning cries of an unsustainable bubble are growing louder by the day.

Low interest rates and the massive stimulus spending by the Chinese government have helped flood the market with liquidity and kindle a property market fever.

But fears that such measures may be withdrawn next year to cool the market have actually triggered a round of ‘panic buying’ of property.

Younger Chinese are under mounting pressure to grab homes before prices spiral to unaffordable heights.

Premier Wen Jiabao chaired a State Council – China’s Cabinet – meeting on Monday, acknowledging such concerns and pledging to increase the supply of lower-cost housing, curb speculation and clamp down on excessive growth in home prices in some cities.

Beijing this week reintroduced a nationwide real estate sales tax in an attempt to reduce property speculation.

Anyone selling a second-hand apartment or house within five years of purchasing it – three years longer than the previous two-year timeframe – will have to pay a sales tax of 5.5 per cent.

Mr Goi said he had been very cautious about the market and the dangers of a bubble forming.

But he still expects prices to rise higher this year, and is on course to expand Junhe with more projects in China and to list the company in a few years’ time.

‘There is still a lot of growth potential, as more people move to the cities and people are willing to pay more for homes with reliable and guaranteed quality. So the Junhe brand, a Singapore brand, appeals to them,’ he said.

UBS economist Tao Dong agreed that the market ‘is just getting hot’.

Beijing wants to push for greater urbanisation of China to stimulate the country’s domestic demand next year and beyond. That is likely to push provincial governments to build more urban housing, she said.

Foreign developers, who exited last year when the Chinese property market sagged, have piled back in recently, according to real estate consultant DTZ.

They are adding to the flurry of activity as the construction of 162 million sq m of new housing and commercial space started last month – double that from a year ago.

Still, some local developers, including China’s largest player Vanke, are starting to get antsy.

While ‘things haven’t risen to a property bubble yet’, the sharp rise in prices across some major Chinese cities could spill over to second-tier ones with potentially damaging effects, its chairman Wang Shi said in an interview with the Wall Street Journal on Dec 4.

The effect, he said, could be similar to the nature of the Japanese bubble decade that imploded in the early 1990s.