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China goes house hunting to rev up economy

(Agencies)
Updated: 2009-08-18 17:30

The housing market rebound in Beijing, Shenzhen, Guangzhou and other big cities means that prices are already back to their 2007 peak, the report noted.

While prices are high, a surge in sales has depleted housing inventories and developers need to break ground to catch up, Ken Peng, an economist at Citigroup in Beijing, said.

That the Chinese property sector is at a turning point, just getting back on its feet, is seen in the differing fortunes of shops at the Shilihe hardware market in east Beijing.

Those selling goods for early stages of construction, such as tiles, say business is strong. Vendors of lights, among the final purchases for a new home, say it is only now perking up.

"We have done some sales to attract shoppers. But we have actually started scaling these back," said Chen Yu, a saleswoman at Jushang Lights.

Up or down?

The government can take heart in how most of the real estate money has been spent to date.

Special Coverage: Housing in China Related readings:  Jan-July housing investment up 11.6%  440m yuan allocated for rural housing  Housing price up 1.0% in July  Public housing in need  Beware housing bubble

Investment in property construction was up a fifth in western China -- the part of the country with the biggest need for new housing -- in June compared with a year earlier. Wealthier coastal areas in the east, which are already heavily built up, saw a 4.4 percent rise.

But officials are wary of another boom in housing prices paving the way for yet another bust. A handful of Chinese cities have made mortgage lending terms on second homes stiffer to try to keep speculators at bay.

Several real estate agents said the market seemed to have cooled over the past few weeks.

Shanghai Xinyi, a real estate agency in China's financial center, said transactions in August fell by half from July.

A salesman surnamed Luo at a Shenzhen branch of Centaline China confirmed that business has slowed down from its brisk pace in the first half.

"It was not rare for house sellers to cancel their original contracts and lift their asking price, even if it meant paying a penalty," he said by phone. "But the momentum has weakened in August. We could feel the effect of the government's tightening-up of loans for second homes."

However, Dong Tao, an economist with Credit Suisse in Hong Kong, offered another explanation of the drop in transactions.

Soaring demand gobbled up whatever homes were on the market and so developers simply must build more, he said in a research note. But it takes time to buy land and obtain approvals.

"After many sites have passed the paperwork phase, we expect housing construction to rise significantly over the summer time."

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