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Saturday, March 6, 2010

Keeping The Lid On House Prices

Great demand: A file picture of house buyers checking out the properties on offer at a property fair in Shanghai.

The question of when is the right time to buy a house is always on the minds of the Chinese people. But the timing varies like a roller coaster.

The world’s third-biggest economy has seen itself moving back and forth in its fiscal approach to control soaring house prices over the past few years. And this can only complicate the decision to buy a property, not to mention that prices remain ridiculously high.

Senior executive Chen Zilin, who bought his first home in Beijing six years ago and a second in 2007, went through tough times on each occasion. Now he is more like an observer of the ever dynamic real estate market.

“Before I got married, my then fiance told me to buy an apartment before we could wed. We got the apartment for 380,000 yuan (RM187,000) which was quite a good price at that time,” said the 32- year-old from Zhuhai in Guangdong province.

Chen and his wife lived in the first apartment, a two-bedroom unit measuring 90 sq m, and rented out the second, a service apartment about 13km from the city centre.

The first apartment was bought under the city’s affordable housing scheme that his Beijing native wife is entitled to. It can now fetch 1.4 million yuan (RM690,000). The second is now valued at over a million yuan, up from 700,000 yuan (RM343,000).

“Who would have expected the price of my first apartment to increase four-fold? It’s good that I bought the apartments early as I can now save money for other things,” he said.

“But if I were to buy a bigger house, I will have to pay more. So, there are two sides to the coin.” Last month, the Chinese government moved to cool a possible bubble, when house prices in 70 major cities rose 9.5% year-on-year, by limiting interest rate discounts for loans and requiring buyers to pay as much as 40% in down payment.

Several banks, following government guidelines, have also stopped lending to property developers without adequate capital or licence, and recalled loans to those hoarding land and homes.

Just 10 months ago, when housing sales slumped to record lows, banks were allowed to give a maximum 30% discount on the interest, and down payment of as low as 20%.

House buyers in cities like Shanghai even had stamp duties waived and deed tax cut to 1%.

And the grapevine has it that developers in Beijing will be required to announce the exact sales numbers of their housing projects as soon as they market the projects.

“The government has been rather passive and not taking enough initiatives to dictate the pace. At the end of the day, most people still look at the price, which is still too high, when house hunting,” Chen said.

Xu Fang, who works as a teacher in Shanghai, believes that despite the high prices in many major cities, there are still potential growth areas where prices are relatively affordable. She and her husband bought three apartments in three years, all in the suburbs.

“We bought our first home in Anting for only 400,000 yuan (RM196,000) using our parents’ savings. Then we walked out of a sales centre with another apartment costing about the same price, followed by the third a few months later,” the 27-year-old said.

“I’m not worried whether the price of my properties will increase significantly. So far, the price of the first and second houses, each measuring 70 sq m, have gone up to about 550,000 yuan (RM269,000), which is not too bad.

“When buying houses, we mostly consider the location, whether there’s a core industry which can bring about sustainable development in the area.”

She said Anting had great promise – the town had been earmarked as a car city together under the city’s 11th Five-Year Plan (2006-2010). The third apartment, a three-bedroom unit costing about a million yuan, is now Xu’s most prized acquisition. The couple plans to move into the apartment with their baby one day.

In Guangzhou, where average house prices are about 8,000 yuan (RM3,920) a sq m, buyers have seen prices increase more than 25%, the highest nationwide last year.

“It’s better not to buy a house now, as the prices do not reflect the actual cost of the property,” said a Guangzhou-native designer, who only wanted to be known as Yang.

Yang bought a 90 sq m secondhand apartment near downtown for 550,000 yuan (RM269,500) at the age of 33. Currently it can fetch 715,000 yuan (RM350,000), a 30% gain on paper.

“The price was still all right when we bought it one-and-a-half years ago. Last year, house prices in the city rose significantly,” he said. Yang is paying back his parents 5,000 yuan (RM2,450) a month for the money he borrowed from them to buy the house. He and his wife have a yearly disposable income of 210,000 yuan (RM102,900).

However, for those with lower income, owning and changing to a bigger home remains a dream. Chinese Premier Wen Jiabao told netizens in an online chat last Saturday that he was bent on keeping house prices at reasonable levels.

“I really understand the complaints as my family had lived in a 9 sq m house before I left home. Of course, that was a different era, and now we should provide housing for the public based on the current situation,” he said.

“We will need a little longer to strike a balance between supply and demand, and giving the public more housing choices and fiscal management in managing the market.”

Wen said the government would build five million affordable homes this year, adding to the two million completed last year. Another two million shanty houses will be upgraded this year.

He also vowed effective fiscal policies and legal means to curb land hoarding by developers as well as property speculation.

Mu Qiru, a representative of the Chinese People’s Political ConsultativeConference,thenation’s top advisory body, said it was not right to blame the entire real estate industry for the soaring prices.

“We must have confidence in the developers as well. Developers are a driving force in our economy and pay up to 65% taxes to the government,” said Mu, who is also the chairman of Beijing Zhaotai Land Holdings Co Ltd.

She said the recent record-breaking land sale prices was unavoidable as developers faced fierce competition in land auctions, but the government could continue to fine-tune auction procedures to keep prices at reasonable levels.

By The Star

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