Housing Salvation

The real estate market of China once again became a hot topic in this country –and maybe the world. This time it was not about the fast growth or the high price； instead， “depression”and “falling market” were frequently used to describe the present real estate market in China.

The situation was even worse in the third- and fourth-tier cities of China， whose real estate market is said to have been in danger ever since last year. The depression is represented by the decrease in the deal volume and the drop in the prices.

In some non-core areas of Hangzhou， there came out 40% discount for the housing price. Ningbo， Wuxi and other cities all witnessed the decrease in the housing price. The influence was even spread to the major cities of China. In Shanghai， some housing agencies began to cut jobs to reduce the cost because “the decreasing deal volume is undermining their profit margin”.

This might be good news for the ordinary people who planned to buy a house， but the continuous drop in housing price is definitely bleeding the real estate developers in China. According to Zhang Dawei， research director with Centaline Property Agency， said that the top 10 real estate development companies in China had sold 188 thousand houses and earned the sales revenue of 241.4 billion yuan by the middle of this year， equaling only 28.3% of the deal volume in 2013.

The unexpected underperformance in the sale has pulled down the business of real estate companies. 61 out of 117 enterprises that were listed in Shanghai and Shenzhen reported decreased profits or even losses. The depression of the real estate market means that the developers cannot get back their money quickly. As a result， the companies without enough fundraising ability are exposed to the danger of broken capital chain.

When the real estate developers are trying to survive the mess， the international ratings agencies and investment banks “stabbed them in the back”. Moodys announced the downgrading of the outlook of Chinas real estate market from stable to negative. Meanwhile， Barclays reported that the real estate market is full of challenges in the future. All these mean that the real estate market in China is facing a harsh situation.

Saving the Market

The harsh situation has alerted a lot of people and organizations. The government is one of them. The Chinese government， especially the local governments， used to be very active in taking measures when there were any negative signs looming in the real estate market. However， the central governments order issued in 2011 has kept them at bay at least till this May.

The present depression in the real estate market， which was described to be beyond imagination， greatly unsettled the local governments of China. Some of them were not willing to see the withering of their important real estate industry and began to take actions.

Tongling， Anhui， was one of them. Its new property policy took effect on May 1， stipulating that anyone who buys a common residential house that is this persons first house （used house included） in Tongling from May 1 to December 31， 2014 can get the taxation subsidies from the government which accounts for 1% of the housing price.

In addition， any individual that pays and deposits the housing funds for three straight months – half of the previous requirement – are qualified to apply for using the funds. A couple that only has one person to work can apply for 300 thousand yuan of the housing fund loan， 50 thousand more than before. Moreover， the proportion of the down payment in the first application for the housing fund loans was decreased to 20%.

The government of Tongling also promised to adopt the flexible regulatory method of turning the pre-sale capital of commercial houses into regular margin. This is a term that can help the real estate developers accumulate the capital and keep their capital chains from being broken.

Tonglings actions were a result out of compulsion. According to the official statistical data， the area of commercial houses waiting to be sold in this city amounted to 555 thousand square meters in the first quarter of 2014， up 57.7% year on year. In the same quarter， 2.42-billion-yuan investment was put into the real estate development of Tongling， 16.1% higher than a year before and 3.5 percent higher than the average level of Anhui Province.

In comparison with the increasing number of houses， the deal volume had a disappointing 26% decrease in the first quarter of 2014. Meanwhile， the GDP growth rate of Tongling in Q1 reached 10.3%， slightly lower than the 11.3% growth rate in the first quarter of last year. Considering the high purchasing power in Tongling – the GDP per capita in Tongling ranked among the top in the entire province， the decrease in the deal volume is a sign of the oversupply in the real estate market， which could foretell the depression of the property market of this city.

The measures of Tongling soon grabbed the headline of the media in China. Some of the reports directly called it a package to save the real estate market. However， the government of Tongling refuted this and called it a set of policies offering favors to citizens. Some experts also attributed it to an inevitable part of the urbanization.

Before Tongling， Wuxi， Jiangsu， and Nanning， Guangxi， initiated the similar measures. Though the local governments of these cities refused to link their actions to the salvation of the property market， they have been under heavy scrutiny from the very start. The central government of China which banned several of similar policies last year seemed to have acquiesced of their measures. Encouraged by this， more and more cities， including Hangzhou and Tianjin， joined in the list with property salvation measures.

Salvations Unnecessary？

Even though the list of cities that have measures to save their property markets is growing longer， the mainstream opinion regarding this market in China is that the salvation is still controllable and operative. Liu Haisheng， director of Shanghai Housing Guarantee and House Management Bureau， said that the housing price depended on the supply-demand relation， land price， monetary factors， market expectations and so on. The drop in the housing price， which is not even a nationwide phenomenon， should not be considered a sign of the possible hazardous time for the real estate industry in China.

Even some real estate developers refused to admit that they are in trouble. They seemed to have little gratitude towards the local governments that took measures to “save them”. “The housing price just dropped slightly. Why were local governments like being punched in the face？ They were a bit overactive and over-anxious to take measures to save the market now.”

“It has been over ten years for the real estate market in China to have fast development. Now it is inevitably stepping into a ‘stagnant period， in which the local government should get used to the new changes and let the market and consumers take the main roles in the process instead of taking salvation measures hurriedly，” reported Chinas Xinhua News Agency. This is also considered to be a common attitude towards the local governments salvation of the real estate – their actions are the widelycriticized governmental interventions， taboo for the free market.

“In the past， there were several engines to push up the housing price in China – the oversupply of money， the ever-increasing demand， the fast GDP growth， the dependence on the land finance and the appreciation of RMB. But now， these factors are different from years before： Chinas GDP growth has been slowed and the demand for houses in lesser cities of China has been met， rendering the oversupply of houses an undisputable fact in these cities，”said Ma Guangyuan， deputy director of the Central Economic Council at China National Democratic Construction Association.