The real estate market in both U.S. will get worse before it can get better.
The numbers look good, but real estate is in trouble in China
By Langi Chiang Reuters
Published: June 9, 2008
BEIJING: A credit crunch, dwindling transactions and falling prices in some hot markets are adding up to trouble for the Chinese real estate industry.
Although official figures show investment in property rose 32 percent in the first four months from a year earlier, developers are worried as bank loans dry up and the cost of tapping other sources of funds rises.
Falling home sales are a particular threat to developers, who typically rely heavily on cash from the sale of unfinished projects to pay for operations and expand.
"Our strategy now is to safeguard our cash flow," Yang Junfang, deputy head of strategic investment for Xinyuan Real Estate, said at a property forum last week. "We're taking a more conservative view of the future."
The situation is making bank regulators and analysts nervous that a new crop of bad property loans is on the way.
"It's one of our biggest concerns, but we don't see a manifestation of that in the quality of loan portfolios yet," said Charlene Chu at Fitch Ratings in Beijing.
The number of residential transactions in Beijing fell 13.7 percent in April from March and was down 56.4 percent from a year earlier, according to the China Index Academy, which is affiliated with SouFun.com, a leading real estate Web site.
Liu Juan and her husband have been trying in vain to sell their Beijing apartment and move into a larger one. Prospective buyers have come to look at the apartment over the past two months, but no one has made an offer.
"Everyone seems to be looking instead of buying right now," she said.
China does not publish data on nationwide sales. But it compiles a property outlook index on the state of the market. The index has been falling since reaching a peak in November.
"Some cities have seen significant falls in real estate transactions, especially since the end of 2007, which poses risks to the short-term operations of listed firms that cannot be overlooked," the China Index Academy survey reported.
The survey showed that the liabilities of locally listed Chinese developers reached 76.5 percent of their assets at the end of last year, up from 69.1 percent at the end of 2006. The 70 percent mark is seen as a warning level.
And while average property prices in 70 cities were up 10.1 percent in April from a year earlier, prices have declined on a monthly basis in the prosperous Pearl River Delta region of southern China, especially in Shenzhen.