January 06,2009

Housing Market a Drag on into 2009 and Beyond

By CSC staff, Shanghai

"If I still can’t sell 10 apartments, I’ll drink 10 bottles of melamine." --the MSN signature of a sales director of a Beijing-based real estate company.

Beijing: The worst in a decade

For those who have worked in the Beijing real estate industry over the past 10 years, 2008 will have been the worst. Latest figures revealed by the Beijing Bureau of Statistics show that housing sales area between January and November totaled 7.389 million square meters, a drop of 52.4% over the same period of 2007.

A 50+% decrease in sales leaves much new housing vacant. By the end of December, 2008, the number of salable houses and apartments under construction in Beijing reached 188,031, while finished but unsold houses and apartments totaled 174,290, leaving over 360,000 units on the market. If they are sold at 120,000 a year, the rate in 2007, it will take at least 3 years to sell them all, and that’s if no more are built.

Diving sales has not been Beijing’s only problem. Housing prices in many areas have fallen back to mid-2007 levels. Some new housing has been priced lower than second-hand housing on the market.

The drop in new housing prices has also directly affected the prices of used housing. According to 21st-Century Real Estate, prices for 85% of the second-owner housing on the market saw an average price fall of 8.9% in the second half of 2008, the first time such housing prices have fallen in Beijing in the past ten years.

2009 will be a year of adjustment for the real estate industry. The bearish market may end in the second half of 2009, but a 21st-Century Real Estate insider said a rebound in the second half of 2009 didn’t mean price hikes. Any boom in a real sense, with rising housing prices, won’t come until 2011 at the soonest.

Shanghai: Vacant Offices in Pudong

Savills, one of the world’s largest property service firms, reckons the 2008 vacancy ratio of A-level commercial property in Shanghai’s Pudong district may be as high as 25.6%.

And then there is the residential market. In 2008 in Shanghai, new housing turnover slumped by 57%, year on year. In Nanjing and Hangzhou, the other two big cities in the Yangtze River Delta, trading volume slumped by 54.3% and about 50%, respectively. Prices in these three cities have not been cut, but industry insiders believe it is just a matter of time before developers will have to do so to promote sales, perhaps by as much as 15% to 20% in 2009.

According to latest figures from Shanghai Youwei Real Estate Research Center, 2008’s residential turnover in the Shanghai market totaled 8.97 million square meters, plummeting 56.88% from 2007, with an average price of 13,700 yuan per square meter, up by 32.52%.

Meanwhile, market demand is not moving. Although central and local government stimulation policies may have increased trading volume a bit in the short-term, nobody is expecting buyers are to swarm the market in 2009.

Lu Qiling, an analyst for the Shanghai Youwei Real Estate Research Center, says high-end buildings inside Shanghai’s urban ring accounted for 58% of total trading volume in the first half of 2008, a situation that changed, however, in the second half of the year. In recent months, the number of overseas housing buyers dropped significantly. Cases of buyers purchasing dozens of apartments also disappeared.

In Nanjing, 4.44 million square meters of housing was sold in 2008. A local government department declared on its website that Nanjing’s remaining salable units totaled 51,618. At the 2007 rate, it will take about 15 months to sell them all. By the end of 2008 salable houses and apartments totaled 32,000 in Hangzhou, double the number at the end of 2007.

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