Source : Business Times – 19 Dec 2009
Analysts say that the reinstatement of a sales tax is a token measure that won’t change the upward trend in prices
GLORIA Gu paid US$483,000 for an apartment near Shanghai’s financial district so that her three-year-old son could attend one of the city’s best kindergartens. Six months later, a similar place in her building sold for US$615,000.
‘Prices are way past reasonable,’ said Ms Gu, 31, a food company manager who bought her three-bedroom, 140 square meter apartment in the Pudong area in May. ‘The market is too good to be true.’
Escalating prices in Pudong, transformed within two decades from vegetable fields to skyscrapers for Citigroup Inc and HSBC Holdings plc, underscore a Chinese property market that set record highs this year after the government unleashed US$1.3 trillion in new bank lending to counter the global recession.
Premier Wen Jiabao said on Nov 28 that property speculation must be suppressed, and the government on Dec 9 reinstated a sales tax on homes sold within five years of purchase after reducing the period to two years in January. That change is superficial and will have minimal impact, said Lu Qiling, an analyst at Shanghai Uwin Real Estate Information Services Co.
‘It’s only a token measure,’ Mr Lu said. ‘It won’t change the upward trend in housing prices.’
China’s leaders will not make major policy changes because they are preoccupied with economic growth and social stability, overriding concerns that rising property prices are forming a bubble, said Clement Luk, an analyst at Centaline Property Agency Ltd in Shanghai.
‘The government is clearly in a dilemma,’ Mr Luk said. ‘It wants to address the surging property prices and concerns on bubble-bursting, yet it dares not take drastic measures for fear of hitting the market too hard.’
That complacency could have ‘disastrous’ consequences for the world’s third-largest economy, said Michael Wu of Fitch Ratings in Hong Kong.
‘If the government fails to act and the property market goes all the way up nonstop, it will cause a huge bubble and cause some serious issues in 2011,’ said Mr Wu, the head of Fitch’s Asia Corporate team. ‘It will be quite disastrous.’
Home prices in 70 major Chinese cities, including Shanghai, rose 5.7 per cent from a year earlier in November, the fastest pace in 16 months, according to government data. The property market was a prime driver of the economy’s 8.9 per cent growth in the third quarter.
‘Rapid’ increases will continue till the first half of 2010, said Zhou Hu, a real estate analyst at Bohai Securities Co in Beijing. Prices will rise for the next three decades and peak in 2040 at 2.5 times current levels, according to China International Capital Corp estimates.
China risks a ’similar asset bubble’ to that in 1980s Japan unless lending is reined in, Erwin Sanft, head of China and Hong Kong equities research at BNP Paribas, said on Nov 23.
The Nikkei 225 Stock Average surged sixfold and commercial property prices in metropolitan Tokyo rose fourfold before the bubble burst in 1990, triggering what Japanese call the ‘lost decade’ of little or no growth. The Nikkei trades at a quarter of its December 1989 peak.
‘Over-liquidity will lead to asset bubbles in equities, real estate and commodities,’ China central bank adviser Fan Gang said on Nov 18. ‘That’s something we really need to watch.’
China Vanke Co, the country’s largest publicly traded real estate developer, said this month that sales in the first 11 months rose 36.2 per cent to 57.9 billion yuan (S$11.9 billion). Thirty-three of 35 analysts have a ‘buy’ rating on the Shenzhen-based company’s stock.
The Shanghai Property Index, which tracks 33 developers listed in the city, has more than doubled this year, compared with a 75 per cent gain for China’s benchmark Shanghai Composite Index.
Pudong, covering 1,210 sq km from the East China Sea to the Huangpu river, is home to China’s largest stock exchange and its biggest futures exchange by value.
China said in March that it aimed to make Shanghai a world financial centre by 2020 by allowing more foreign participation in its capital markets. Walt Disney Co will build its first mainland theme park in Pudong, and Shanghai is spending US$4.4 billion on subways, roads and other infrastructure before next year’s World Expo there.
Average new apartment prices in Pudong gained 57 per cent this year to a record US$4,061 per square metre (psm), while overall prices for China’s richest city rose 26 per cent to a record US$2,434, according to Shanghai Uwin, which tracks prices.
Accountant Wang Jin waited in a downpour for six hours last month to buy an apartment in a Pudong project by Shui On Land Ltd, a Hong Kong-traded developer controlled by billionaire Vincent Lo.
More than 800 people lined up outside a sports stadium to buy about 220 units costing about US$4,100 psm on average.
‘I couldn’t believe what I saw when I got there,’ Mr Wang, 37, said. ‘I know the property market is sizzling now, but this?’
New home mortgages in the first nine months of this year totalled about US$139.5 billion, quadruple the amount offered a year earlier, the central bank said.
Cao Guanzhou, a real estate agent in Shanghai, tried to take advantage of the boom. After selling his Pudong apartment in May for 54 per cent more than what he paid three years ago, Mr Cao closed his hot pot restaurant and started selling properties.
Business is slow, he said. ‘Too many agencies have opened up,’ Mr Cao, 51, said. ‘There’s too much competition now.’
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