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Overview: China Real Estate Market Part II

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real_estate June 9, 2010 (Yantao Li) Property prices in China have been increasing largely since mid 2009 due to the economic stimulus plan in China. Chinese policy markets unveiled a huge, RMB4 trillion ($586 billion) stimulus package in November 2008 to tame the effects of the global economic meltdown.

An unintended consequence of the stimulus was the sharp increase in property prices. On 17th April, 2010 the Chinese government announced another step of an ongoing curbing policy to prevent a housing bubble to burst. After the announcement, while property prices still kept increasing, the trading volume had dramatically decreased.

Following the national government policy, local government also proposed their own policies to address the “real estate problem”.

For instance, on 4th of May 2010, the Beijing local government released the alleged strictest real estate policy, which prohibited the same family from purchasing a second property in Beijing. Several days later, Shanghai local government also came up with a proposal considering the extension of the property tax to investment properties, which would dramatically raise the cost of second property buyers.

Under the series of curbing policies, on 16th of May, the sale price of a newly finished building of China Vanke (SHE:200002) decreased by 800 to 24.2 thousand yuan per square meter, while the price of second-hand property in the same area is around 26 to 28 thousand yuan per square meter. It is predicted that such an initiative will trigger the overall decline of the property price in Beijing.

Following graphs briefly illustrate the real estate market condition in China in the past 12 months.

YL_201069_1

YL_201069_2

YL_201069_3

http://www.china.com.cn/economic/zhuanti/07tjsj/2010-05/19/content_20073438_2.htm


Commentary

Many in China believe that the policy proposed by Beijing government will ultimately drive down the price by directly limiting the demand. However, the property tax on a second property proposed by Shanghai government may not be effective, since it is possible that the tax will be incorporated into the cost of the property, which will further build up the property price in the second-hand market.

All said, real estate prices are expected to stay volatile for the next quarter at the minimum. The good news is that property prices in Beijing are more likely to tame in the near future. However in other Chinese cities, where there are no strict local policies in place yet, property prices are expected to continue to rise or even accelerate since a large amount of money may be coming out of Beijing looking for their next city.



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