The looming National Day holiday in October may be crucial for China’s real estate market. In an attempt to kick-start stagnating real estate sales, major cities will be holding real estate expos during the holiday, and buyers will be watching for future price signals.
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This fall’s Shanghai Real Estate Trade Fair is widely expected to be the beginning of a new round of price cuts. In China, so-called "golden September and silver October" are a traditionally good season for the sales of all kinds of commodities. But in September this year, Shanghai’s real estate sales volume has continued to drop. In July, trading of newly built housing slumped by 69% over the same month last year, and the average price fell by 24% over the previous month, a record monthly decrease.
Major financial firms have begun to sell their Shanghai properties. Morgan Stanley plans to sell three property projects there and will discontinue its investment in Shanghai World Financial Center. Citigroup intends to sell its two apartment buildings in Shanghai, while Merrill Lynch is selling its project on West Nanjing Road.
The year-long real estate market recession started with exorbitant prices but is now largely led by scant credit that has dampened consumer’s willingness to buy and put a strain on developer’s capital. Prices for new apartments have been falling since August as developers claw back needed cash, increasing downward price pressure.
But drastic price cuts have triggered disputes between new home owners and developers. Vanke, China’s leading real estate developer, has encountered protests from previous buyers in Nanjing, Shanghai and Hangzhou who bought apartments earlier at the sky-high prices.
According to Goldman Sachs, with prices falling, buyers�purchasing power increasing, and investment growth in the real estate industry slowing since the second quarter of this year, the supply and demand situation can only reach a balance with the support of at least two peak seasons.
Morgan Stanley Chinese stock analyst Lou Gang worries over a real estate market collapse as Chinese developers face default if the market depression continues, which would also hit balance sheets of banks who lent to them.
Goldman Sachs believes the risk for bad loans in China’s banking industry will emerge in the forth quarter of 2008 and at the beginning of 2009.
If housing prices continue to decrease, income from land transference, on which many local governments depend, will also fall. To avoid this, Chinese local governments have already made moves to rescue endangered local real estate markets. Cities in the west of China like Xi’an and Chongqing are granting subsidies to housing buyers. In Nanjing, Jiangsu Province capital in the east of China, 20 new policies have been released to stabilize the market. Guo Hongding, vice director of Nanjing Bureau of Housing Management said the new policies aimed to put some confidence and stability back into the market. Turnover in Nanjing has fallen dramatically since the beginning of the year.
The China Real Estate Association and China Real Estate Chamber of Commerce have jointly submitted a petition to the central government, pleading for a market rescue. A source in Beijing said a special trading tax imposed on buyers of a second apartment might be canceled in future.
But the central government has made no moves to extricate the real estate market. On September 27 at the Davos Forum in Tianjin, Liu Mingkang, chairman of the China Banking Regulatory Commission, said he agreed with the government’s real estate industry policy of the past two years, saying it showed the government’s cautiousness on management.
The Chinese government has decided to hold the Third Plenary Session of the 17th CPC Central Committee after the national holiday in October. Historically, the third plenary session is often the time the government makes important economic decisions. So, the real estate industry hopes and hopes, a rescue may not be far off.