China Real Estate Market Dives

April 13, 2012 Updated: April 15, 2012

Real estate transactions in China were scant during the first quarter of 2012—mostly due to regulation from the central government, forcing the market to hit the bottom. 

Residential land sales declined considerably both in volume and price in major cities under the weight of new regulation. Experts say real estate transactions will remain slow if regulation pressure is not relieved. 

At two major political meetings this year, Premier Wen Jiabao expressed the need to better regulate the real estate market—raising the public’s expectation of a further housing price drop and in turn contributing to the decline of real estate transactions.

The total transaction volume from January to March for 20 cities was 222,000 units—a drop of 28.3 percent from the 309,000 units in the same quarter last year, according to statistics published by Centaline Property’s market research department. 

The decline from the last quarter of 2011 was 15.6 percent, or 41,000 units. In the same period, the drop for Shanghai, Tianjin, Shenyang, Dalian, Qingdao, Hefei, Changsha, and Haikou was more than 40 percent. Zhang Dawei, the chief inspector of Centaline’s research department said housing prices are expected to drop 10 to 20 percent in the next six to twelve months.

Developers have indicated they expect housing prices to drop a further 20 percent, according to Standard Chartered Bank’s recent survey of 30 real estate companies across eight cities. The survey found inventory steadily increasing, and 23 companies reported that the inventory in their developing cities exceeded estimates. The cities surveyed were Chengdu, Wuhan, Nanjing, Hangzhou, Xian, Shijiazhuang, Zhongshan, and Zhaoqing.

Statistics from “I Love My Home Market Research Institute” show that the total number of first quarter transactions in second-tier cities in northern China dropped 51 percent, a rate of decline higher than the first-tier cities in the region. In the central south, the drop rate for second-tier cities is 22 percent, which is consistent with the drop experienced in first-tier cities. The eastern part of the country was the only area that showed a higher transaction rate in second-tier cities.

In March, average house prices in 100 cities continued a seven-month consecutive decline, according to data released by the China Institute of Real Estate Index. 

In addition, many developer’s loans are maturing in the second and third quarters of this year—placing more pressure on the financing system, according to Standard Chartered Bank. The number of loan defaults and bankruptcies are expected to rise. 

Noted real estate company, China Poly Group Corp., has resorted to promotional activities, waiving fees and down payments, and big price reductions to move inventory. The company has conducted almost 100 promotional activities in 40 cities since January. In March, some contracts were executed through group purchase, online auctions, and some properties were sold for 20 to 30 percent off. 

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