Housing costs stable but builders face woes

HOUSING prices will likely remain stable over the next 12 months while real estate developers will face greater pressures in financing amid tighter government controls, industry experts said yesterday.

"Due to the increasingly stricter regulations aimed at both adjusting the imbalance between demand and supply and curbing the soaring property prices, we expect an easing in price rises in the Chinese property market," Fitch Ratings said yesterday in a market outlook report. "Property developers are, however, likely to face more pressure in financing and liquidity this year."

A widening gap between demand and supply has been driving up real estate prices in China over the past few years.

One factor is that land shortages and land hoarding have led to an undersupply, and another is that rising investment-driven demand have pushed property prices to a record high, industry people said.

"The market will consequently face stricter regulations, and credit tightening will become the normal practice in the sector," said Matthew Kong, associate director with Fitch's Asia Corporates team. "However, the authorities will put more emphasis on addressing supply issues while continuing to curb demand to narrow the demand-supply gap and stabilize property prices."

One of the latest measures by the central government to increase land supply is to charge developers a 20-percent fee, based on the land transaction price, if they hoard plots which have been idle for more than one year but less than two years after acquisition. Those which have been empty for more than two years will be reclaimed by the government, the State Council, China's Cabinet, said in a notice on its Website last week.

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Home prices up 10.5% but growth rate slows

CHINA said yesterday that home prices in the country rose 10.5 percent in December compared with the same month a year earlier but the growth rate slowed amid official efforts to cool the boom.

Chinese leaders have imposed curbs to cool the market, worried that runaway spending could ignite a debt crisis and that prices are rising beyond the reach of the country's poor majority, according to the Associated Press.

Despite those measures, prices in December jumped as much as 25 percent in some cities, the country's top planning agency, the National Development and Reform Commission, said on its Website.

But it said the nationwide growth rate was down 0.6 percentage point from November's growth rate.

Meanwhile, in the first few weeks of 2008 sales of residential property in China's major cities fell drastically, the China Securities Journal has reported.

Cities such as Beijing, Wuhan in Hubei Province and Chongqing saw their housing transactions in the first week of the year drop by more than 20 percent from the previous week, the report said.

Housing transactions in the booming southern city of Shenzhen in Guangdong Province plunged by about 38 percent and sales in Nanjing, capital of Jiangsu Province, plummeted by more than 52 percent, it said.

As housing transactions in most cities continued to decline, Wang Shi, chairman of Shenzhen-based Vanke, China's largest real estate developer, recently admitted the "turning point" of China's property market had come, Xinhua news agency reported.

His remarks sparked a furious debate, and some developers blamed him of fanning the wait-and-see attitude among consumers.

Housing prices also fluctuated in various cities with dwindling trading volume. Beijing saw its average housing sales price rise slightly by 1.33 percent in the first week of January, but Shenzhen reported a 3.96-percent slump.

Real estate developers in Beijing were trying to attract more buyers by offering discounts or special "gifts," such as a free parking space or home decorations.

A salesman at Webok International, a new residential development in the bustling Chaoyang District of eastern Beijing, said his company recently cut the sale price of its homes from 24,500 yuan (US$3,297) to 22,000 yuan a square meter.

Other developers also joined in on the price-cutting to promote sales in the city.

Pan Shiyi, head of SOHO China, another major real estate development company, pointed out housing prices would be further curbed in 2008 and 2009 as the government is to offer more economic flats and low-rent housing to middle- and low-income residents.

Housing price jumps 10.5% in 70 cities

THE housing price in 70 major Chinese cities jumped an average of 10.5 percent in December from a year earlier, equaling the two-year-high growth rate in November, the National Development and Reform Commission said today.

Average prices of new homes rose 11.4 percent on a yearly basis after gaining 10.6 percent in November, led by Urumqi, capital city of Xinjiang Uygur Autonomous Region, where prices jumped 25.3 percent in the period, the commission said on its Website this morning

Beihai City in Guangxi Zhuang Autonomous Region ranked second with 19.3 percent growth and Huizhou City in Guangdong Province was the third fastest with 19 percent growth, the commission said.

Shanghai's new home prices jumped 9.3 percent in the period from a year earlier.

The average price of second-hand homes jumped 11.4 percent in the 70 cities year on year.

Urumqi again grew the fastest at 24.2 percent, followed by Ningbo in Zhejiang Province at 16.5 percent and Wuxi in Jiangsu Province at 15.2 percent.

Shanghai grew 10.8 percent in December year on year, according to the commission.

Last year, credit to developers was tightened, supervision over land use was increased and the enforcement of tax policies was improved to cool down a real estate boom.

However, these moves have not been as effective as the central government would have liked since major cities all reported rapid growth last year.

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Shanghai housing index rises at slower pace

SHANGHAI'S second-hand housing index rose at a slower pace last month amid more stringent credit controls over mortgages for people with more than one home, the index's compiler said today.

The index advanced 1.5 percent to 2,217 in December, the smallest increase since June. It is released monthly by www.ehomeday.com and tracks prices for used apartments across the city.

``The clarification of multiple mortgages made jointly by the People's Bank of China and the China Banking Regulatory Commission on December 11th has somewhat curbed demand,'' said Chi Shengyu, an ehomeday analyst.

``A raised threshold for down payments and higher interest charges hampered some home purchase plans by both speculators and end-users.''

Multiple mortgages have now been defined as a family unit, including spouse and children, the central bank and the CBRC said.

Mortgage holders who apply for a second home loan are required to make a 40 percent down payment and pay a 10-percent premium on interest rates. The requirements on third and fourth mortgages are stricter.

The first mortgage rules remain unchanged with a 30 percent down payment required and a 15-percent discount on interest.

Used apartments in prime areas led December's gains with those by East Nanjing Road, Huaihai Road, Jing'an Temple and West Nanjing Road jumping 7.76 percent, 6.26 percent, 5.91 percent and 5.86 percent respectively.

Moreover, due to the rapid expansion of the city's metro network, prices for second-hand houses in Kongjiang, Zhongyuan, the North Bund and Pudong areas all rose significantly over the past month, each securing increases of 4.67 percent, 4.46 percent, 5.18 percent and 4.09 percent, the compiler said.

Meanwhile, the rental index, which is also compiled by the Website, climbed 0.6 percent to 1,123 last month with a mixed performance in different categories.

The average rental for high-end apartments – defined as rent of more than 6,000 yuan (US$820) per month for a regular two-bedroom apartment – edged up 0.4 percent with major gainers including Zhenning Road and Gubei areas.

Middle-class properties, which are leased for between 2,000 yuan and 6,000 yuan per month for a regular two-bedroom apartment, dipped 0.2 percent from a month earlier, with those in Luwan, Minhang and Putuo districts falling the most.

The average rental for the city's privatized public apartments gained a moderate 1.4 percent last month, reflecting a stable market.

Centro receives huge bailout offer

CENTRO Properties Group, the Australian owner of United States malls, has seen its market worth plunge 85 percent in the past month.

Now Centro has been approached by MFS Ltd with an offer to take over managing A$8.5 billion (US$7.6 billion) of funds, Bloomberg News reported.

The unspecified offer is for rights to manage Centro MCS's unlisted property funds, Southport, Queensland state-based MFS said in a statement on Friday to the Australian Stock Exchange. MFS fell 9.9 percent to A$3.55 at the 4:10pm close in Sydney on Friday.

Centro Chief Executive Officer Andrew Scott is seeking buyers for the Melbourne-based company or its assets to help refinance A$3.9 billion of debt by a February 15 deadline. Centro on Friday halted share trades for itself and unit Centro Retail Group.

US shopping mall vacancy rates rose last quarter to an 11-year high, a research firm said on Friday.

Selling fund management rights "won't solve half Centro's problems because the money they could raise is not enough; they need billions," said Justin Blaess, property portfolio manager at ING Investment Management in Sydney. "People are jockeying for position and MFS's response is natural."

The vacancy rate for US neighborhood and community shopping centers rose to 7.5 percent in the three months ended on December 31, from 7.3 percent in the third quarter, as the housing slump dented consumer spending, New York-based Reis Inc said in a survey.

US malls accounted for almost two-thirds of the value of Centro's A$26.6 billion of malls, the company said in its annual report in September.

MFS isn't seeking to buy property from Centro, it said in the statement.

"We have a long track record of taking over syndicates and then very quickly selling them," Craig White, deputy chief executive officer at MFS, said on Friday in a telephone interview. "How can investors assess any offer with the related-party nature of the Centro syndicate structure? You need to appoint someone like MFS who can actually assess an offer."

Jim Kelly, a spokesman speaking on behalf of Centro in Sydney, wasn't able to confirm or deny MFS's approach.

Centro shares peaked at A$10.02 on May 7, less than a month after the firm completed the acquisition of New Plan Excel Realty Trust, paying US$5.2 billion in cash and assumed debt to become the fifth-largest US mall owner.

The stock dropped 86 percent to 80.5 Australian cents in two days after Centro said on December 17 it is struggling to refinance debt because of the collapse in the US subprime mortgage market. Centro slid 25 Australian cents, or 23 percent, to 86 Australian cents on Thursday.

Centro Retail Group, the property trust managed by Centro, was also halted from trading on Friday. It plunged 24 percent to 58.5 Australian cents on Thursday, capping a 59 percent drop since Centro Properties said it was struggling to refinance debt.

Centro Properties' two most valuable assets are the Australian malls Centro Galleria in Perth and Centro Bankstown in Sydney. The two were worth a combined A$1.17 billion, or about 4.4 percent of Centro's total mall assets, the company said in its annual report.

Fund manager Centro MCS was set up in 2003 when Centro paid A$193.5 million to acquire closely held MCS Property Ltd, which then managed A$1.4 billion of assets.

House prices plunge in Beijing

HOUSE prices in Beijing dropped 19.67 percent in December from the previous month, China's Central TV reported.

The average residency price dropped to 12,180 yuan (US$1,676) per square meter from 15,162 yuan. Prices in Dongcheng, Xicheng, Chongwen and Xuanwu, the districts with the highest house prices, slumped to 18,401 yuan per square meter from 23,467 yuan, the CCTV report said yesterday, quoting SouFun Holdings Limited.

Many local property companies had to sell homes with free decorations and appliances due to the slump in sales, according to a Beijing property company, which sold only 10 percent of its new houses in Zhaoyang District since October.

Transactions in Beijing's secondhand house market shrunk 8.2 percent in December, Beijing's official online real estate trading Website said, which described the slump as abnormal.

House prices in Shenzhen and Guangzhou began to drop in October. Transactions shrank more than half in October, the biggest drop in three years. The average price in Guangzhou plunged 20 percent in December.

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Overseas investors join forces with locals

MORE overseas real estate investors are likely to turn to second-tier cities to take advantage of smoother administrative procedures and avoid the tough competition of core cities, industry experts said yesterday.

They said high quality offices and residential properties would remain highly sought after by overseas capital.

"Overseas investors, especially new players such as Winnington Capital and SEB, are opting to join forces with local developers in second-tier city projects," said Kenny Ho, head of research, Shanghai, for Jones Lang LaSalle. "Processing deals for approval appears to get more support, aided by healthy enthusiasm from local governments."

Joining forces with overseas companies is attractive to Chinese companies as they can tap into the expertise that overseas partners can deliver, the experts said.

The Shanghai market has already seen decreasing number of en bloc asset acquisitions over the past twelve months. The latest Jones Lang LaSalle market research has found that 29 en bloc purchases totalling 28 billion yuan (US$3.8 billion) were sealed during the past 2007, as compared to 32 acquisitions worth 24.2 billion yuan in the previous year.

Higher threshold and growing cost of investment, as well as an expected policy risk on overseas investment in the local market, might divert some overseas players to non-core cities for better opportunities, Colliers International said.

However, in general, the local real estate investment market will hold steady in 2008.

Globalization of real estate capital will affect China in 2008 and the subprime crisis in the US have made property funds, especially Japanese and American, search for investments with growth, Ho said.

In particular, industry experts predicted that Grade A offices and serviced apartments will continue to suck in most overseas capital in the local market.

Latest statistics showed that investment in offices and residential properties each grabbed 66 percent and 13 percent of total investment in Shanghai last year, topping all other sectors including mixed-use projects, logistics and retail facilities which each took 10 percent, seven percent and four percent, respectively.

Owners of HK firm seek shares disposal

CHEUNG Kong (Holdings) Ltd shareholders are seeking HK$4.71 billion (US$604 million) from selling stock in Hong Kong's second-biggest developer after the shares jumped 31 percent in the past six months.

Some 33.5 million shares are being offered at HK$140.50 apiece, according to an e-mail from UBS AG, the sale's arranger. The sellers of the 1.4 percent stake in the company controlled by billionaire Li Ka-shing weren't disclosed. The price is 3.8 percent lower than Wednesday's close.

Li, the richest man living in Asia with a US$23 billion fortune according to Forbes magazine, said on January 4 the global economy faces "greater turbulence" this year because of losses from subprime mortgages in the United States and measures to tighten China's economy. Cheung Kong has lagged behind some rivals, including Sun Hung Kai Properties Ltd's 72 percent surge in the past six months.

"The stock has gone up a lot, so it is probably just profit taking," said Sylvia Wong, an analyst at UOB-Kay Hian Ltd in Hong Kong, who rates Cheung Kong shares a "hold." "Hong Kong property stocks are not cheap, and their valuations reflect quite a bullish scenario."

Cheung Kong fell 2.8 percent to HK$141.9, compared with a 0.9 percent fall in the benchmark Hang Seng Index.

Property prices may rise 45 percent in Hong Kong before the end of 2009, UOB-Kay Hian estimates.

"Mr Li expressed his views last week, and the company hasn't changed from those," Cheung Kong spokeswoman Wendy Tong Barnes told Bloomberg News by phone yesterday.

Hong Kong's property market will be "very good" because of the city's inflationary environment, Li told reporters on January 4, according to Barnes.

Builders will have to pay 20% fee for hoarding land

DEVELOPERS will be charged a 20- percent fee if they hoard land plots and leave them idle for more than one year but less than two years after acquiring them, the State Council said in a notice on its Website on Monday.

The council, China's Cabinet, also said that land plots left aside for more than two years will be reclaimed by the government.

The fee, equivalent to 20 percent of the land transaction price, will be levied strictly from now, industry experts said. Previously, the fee was not regarded as obligatory since the government said it might be charged on "principle."

The tougher measures, the latest in a series of macro control policies which aim to cool the country's red-hot real estate market and curb soaring property prices, will likely impact greatly domestic land supply, industry analysts said.

"The nationwide shortage of land supply will probably be eased when such heavy-handed measures are implemented," said Xue Jianxiong, head of research at Shanghai Youwin Real Estate Information Service Co. "By imposing (the fee) stringently, the government will be able to have an overall control of its land reserves."

Land left untouched for more than two years will be taken back by the government. Plots that couldn't be legally reclaimed should be dealt with as quickly as possible in appropriate ways such as changing their designated purpose, bartering, assign temporary uses for them or retain them for government reserves, according to the notice.

The notice also said the Ministry of Land and Resources should join forces with other relevant departments to work out detailed plans regarding land appreciation fees on idle plots.

A tight land supply has been long attributed as the major reason for surging housing prices across the country.

The government's determination to implement the tough measures is certainly a good news to both home buyers and qualified developers who have been plagued by the land shortage, industry officials said.

A recent survey has found that the local supply of residential properties will likely remain tight for at least three years due to insufficient land supply over the previous years.

Prices for the city's new apartments, excluding budget homes and houses meant for relocated residents, rose more than 10 percent last year on average compared to 2006.

Businesses look elsewhere as rents soar in prime areas

THE city's Hongkou District and Hongqiao area in Changning District are emerging as two new sub-central business districts as office tenants start to seek locations away from the center of town amid limited supply and rising rents in core CBD areas, a leading real estate service provider has found.

"Tenants are demanding decentralized locations other than Pudong, fuelling the rise of new sub-CBDs such as Hongkou and Hongqiao," said Remy Chan, regional director of Asia Pacific, Jones Lang LaSalle. "CITIC's projects are putting Hongkou on the map while more high quality supply is set to bring Hongqiao back into the limelight through Metro Plaza, Dawning Center and Gubei Fortune Plaza."

In terms of the total volume, Hongkou is expected to see some 411,000 square meters of Grade A space coming into the market in the next four years whereas about 485,000 square meters' quality supply will become available in Changning during the same period, according to a year-end review released yesterday by Jones Lang LaSalle.

Office rents have been soaring in Shanghai especially in core central business districts including Jing'an, Xuhui, Luwan, Huangpu and Pudong New Area's Lujiazui.

In particular, in the People's Square area and northern Huangpu, recent acquisitions of office towers such as Central Plaza and Cross Tower have pushed the average rents in neighboring areas up by some eight percent in the fourth quarter of last year.

Citywide, total office stock stood at 3.06 million square meters at the end of 2007 with about two thirds in Puxi and overall vacancy remained at 1.6 percent.

For the whole year, rents jumped by 14 percent with those in Pudong rising even faster at 17 percent.

The year 2008 will be a defining year for the local office market with some 845,000 square meters' office spaces due to enter the market, 2.5 times more than usual, Chan added.

As most of it will be in Pudong, rental increases on the east side of the Huangpu River will begin to slow down as landlords experience growing competition from new buildings. However, rents in Puxi are expected to keep rising steadily this year .