Warning after strong mainland property growth

PUBLISHED : Tuesday, 09 March, 2010, 12:00am
UPDATED : Tuesday, 09 March, 2010, 12:00am

Beijing's super-loose monetary policy and unprecedented stimulus measures boosted investment in the mainland's real estate industry to a record 3.6 trillion yuan (HK$4.1 trillion) last year.

This represented growth of 16.1 per cent year on year, with sales soaring 42.1 per cent to an unprecedented 930 million square metres, according to a report by the Housing and Urban-Rural Development released yesterday. Investment in property has grown from 280 billion yuan in 1995.

But analysts say the performance is unlikely to be repeated this year due to the government's tough measures to cool down excessive growth in property prices.

'The amount of property investment is at an historical high, thanks to the four trillion yuan stimulus package providing ample liquidity to major sectors such as the real estate industry,' said Liao Qun, a senior vice-president and chief economist at Citic Ka Wah Bank.

'We saw both property and land prices heating up last year.'

However, Liao believes the trend is not sustainable this year. He forecast real estate investment to drop 10 per cent due to the banks tightening lending for property and other austerity measures to stabilise prices.

Jiang Weixin, minister of Housing and Urban-Rural Construction, told the annual session of the National People's Congress yesterday that the government would punish developers who delayed sales to wait for higher prices. The government would build 2.8 million housing units this year, ensuring that the country's low-income earners could afford accommodation, he said

For the past several months, Beijing has tightened rules governing mortgage downpayments and hoarding of land and finished flats by developers to put the brake on soaring property prices - one of the biggest complaints from the public.

Liao said the government's austerity measures appeared to be working, with property sales tumbling by 50 per cent in the first two months of the year. By the end of the year he predicted that the number of transactions in the residential market would fall by between 20 and 30 per cent.

'As the sector is clouded by uncertainties, investment is likely to slow.'

Alan Chiang Sheung-lai, the head of mainland residential property at property consultant DTZ, said prices peaked last year after home values in four major cities soared by between 40 and 95 per cent.

Home prices in Shenzhen surged 95 per cent last year to an average of 22,000 yuan per square metre; in Beijing they rose 88 per cent to an average of 14,000 yuan per square metre; Shanghai jumped 43 per cent to an average of 20,000 yuan per square metre; and in Guangzhou they rose 41 per cent to 9,200 yuan per square metre, Chiang said.

However, he did not think home prices would fall significantly this year, as developers had built up strong cash flows from the sharp rise in sales last year.

'Property firms will not dump their flats at steep discounts in view of land replenishment becoming more expensive than before,' he said.

Roaring ahead

Home prices in Shenzhen last year jumped to an average of 22,000 yuan per square metre, an increase of: 95%