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Real estate sector cools as brakes work
By Liu Jie (Chian Daily)
Updated: 2004-06-18 23:29

The central government's efforts to control the overheated real estate industry have produced initial results, with growth rates for property investment, new building areas and redevelopment projects all dropping slightly in the first five months of this year.

According to the National Bureau of Statistics, combined real estate investment amounted to 370.3 billion yuan (US$44.61 billion) from January to May. This was a rise of 32 per cent from the corresponding period in 2003, but the rate of growth fell 0.9 percentage points.

At the same time, a total area of 64.8 million square metres was developed, and developers bought another 123.8 million square metres as reserve, up by 19.8 per cent and 9.8 per cent from the same period of last year respectively. The growth rate dropped 22.1 and 46.9 percentage points compared with a year earlier.

Ji Rujin, vice-director with the Real Estate Research Institute at Tsinghua University, said the growth rate decline indicated that the central government's tough measures, including some administrative intervention, has begun to cool the steaming property industry.

On February 26, the China Banking Regulatory Commission issued a set of draft rules to strengthen the supervision of real estate loans, ranging from land trading and real estate development loans to individual housing and apartment mortgages.

Adhering to the central government's policy, some local governments issued supplementary regulations. These included bans on the sale of pre-completion properties and the contractual transfer of State-owned land to private developers in an attempt to limit property speculation.

"As those measures have been in place for less than three months, the effect cannot be notable. The industry will turn to a sound track in a period of time," said Ji.

Yang Shen, president of the China Real Estate Industrial Association, said a drop in the growth of banking loans for property suggested the investment structure was improving.

Of the combined 617.3 billion yuan (US$74.37 billion) raised by property enterprises in the first five months, 140.8 billion yuan (US$16.96 billion) came from the banks. This figure was up 17.6 per cent compared to a year earlier, representing a growth rate slide of 33.7 percentage points.

"Narrowing the banking loan scale may facilitate the banks reducing high risks and curbing speculation by estate developers," said Yang.

But while the enthusiasm for real estate development has started to dampen slightly, housing sales continue to surge. A total of 83.1 million square metres of commercial housing was sold in the first five months of this year, an increase of 30.9 per cent from the corresponding period in 2003.

Meanwhile, the average housing price hiked 8.3 per cent to 2.708 yuan (US$326) per square metre nationwide. Office and commercial property prices surged even higher, up 22.5 per cent and 12.8 per cent respectively.

Chang Xiuze, a researcher with the State Development and Reform Commission's Macro-economy Research Institute, attributed the booming market to promotion by developers and Chinese consumers' preference for investing in assets in the current economic environment.

"As the bank fund-raising channel has been tightened, the developers are eager to realize cash for new projects," said Chang.

More significantly, an increasing number of consumers have found the current bank interest rate level unsatisfactory and have become reluctant to make new deposits.

With limited investment channels in China, consumers are choosing to pool money into the property market.

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