Will the warming continue?

Housing prices rose month-on-month in 70 Chinese cities in the first quarter, indicating that the decline in property prices across the country is slowing, although prices continue to drop in year-on-year terms.

Some say it is a temporary rebound, others say the property market has stabilized and home prices will continue to rise in coming months.

Has the real estate market turned around for good?

Yes

Zhou Chunsheng, professor at the Cheung Kong Graduate School of Business:

The property market has been stabilizing and is set to grow steadily.

Credit expansion is one of the main factors in the warming real estate market. The credit increase will definitely slow down in the remaining quarters of this year but the speed at which new lending grows will not drop too much and is unlikely to impact property prices much.

China's stock market, which has been largely on a bull run the past few months, is likely to show the wealth effect by stimulating the automobile and housing industries.

Confidence in the Chinese economy is also gradually recovering, which will help boost the property market.

Small fluctuations in the real estate market are unavoidable but the chances of a sustained slump in property prices or sales are slim. The property market is linked to many industries, such as steel, building materials and home appliances, and its soundness plays a key role in the economy. The authorities will do as much as they can to ensure its stable development.

Arthur, online commentator at www. caijing.com.cn:

The property market is already on its way to recovery and unlikely to see significant price drops in the short or medium term.

Property developers have succeeded in taking financial institutions and local governments hostage by shifting investment risks to them. Local government bailout measures to property developers also help the governments and will keep the housing market rising.

Investors, expecting excessive liquidity, will continue to favor the stock and real estate markets, despite their high risks, because there are simply no better options right now.

Potential buyers waiting for housing prices to bottom out will soon get nervous about waiting too long and will start purchasing houses, pushing up prices.

No

Shen Minggao, chief economist at Caijing magazine:

The turnaround of the property market will depend on recovery in housing prices, sales and investment. Property sales are clearly on the rise and investment in the industry also seems to be picking up but housing price figures remain vague and are the most difficult of all the indicators to ascertain. We cannot say the property market is already recovering.

Strong consumers demand and price cuts by developers have played major roles in boosting property sales. Housing needs that had been suppressed for nearly a year owing to skyrocketing prices were unleashed at the beginning of this year when many buyers figured housing prices were unlikely to drop further. Such expectations of the market, coupled with declining property prices, prompted potential homeowners to buy right away.

The central bank has slashed interest rates several times, thus reducing borrowing costs for buyers. Policy changes have helped cut transaction-related fees. These all have contributed to the sales boom.

Recovery in investment will be a result of falling land prices and borrowing costs for developers. The latest statistics indicate the growth rates of land prices in more than 90 Chinese cities are down from a year earlier.

If the current anti-deflation policy, a driving force behind the industry's current upswing, is reversed but effective demand is insufficient, a downturn will recur.

Liu Xiaozhong, independent commentator:

Forget strong demand and the idea that property investment keeps value of assets from being eroded by inflation. Even basic foodstuff is prone to price fluctuations, why should house prices only go up? Even gold's ability to maintain value of assets and provide shelter for investors is weakening these days, how can we expect property to do any better?

Investors should avoid the property industry when inflation hits, because inflation (and subsequent interest rate hikes) will likely spur the kind of speculative real estate investing that tends to result in bubbles.

www.caijing.com.cn

(China Daily 05/25/2009 page2)