Soaring Chinese Real Estate Falls Back to Earth ; Housing Starts Drop 25% as Government Policies Reshape Property Market
Bradsher, Keith, International New York Times
Housing starts plummeted 25 percent last month from a year ago, a severe blow for a country long buoyed by residential real estate construction.
After almost two decades of nearly unceasing increases in real estate prices and construction across China, one of the world's longest-running bull markets finally seems to be stalling, with broad consequences for China's economy and possibly its politics as well.
Housing starts plummeted 25 percent last month from a year earlier, the Chinese government announced on Tuesday, a severe blow for a country in which residential real estate construction has come to account for one-ninth of all economic output.
Prices have started falling for new apartments and old ones, and the volume of deals is drying up. The square footage of housing transactions slumped nearly 16 percent last month, government data showed on Tuesday, as sellers were reluctant to accept the discounts that buyers increasingly demanded.
The correction in China's real estate market -- some economists are even calling it the popping of a bubble -- is partly the result of a deliberate decision by the country's leaders.
The Federal Reserve and other regulators in the United States did not try to pop the American housing bubble in the decade leading up to the market's slump in 2008.
But the Chinese leadership has been increasingly concerned over the past several years that housing prices were rising to unaffordable levels and that the economy was becoming overly dependent on investment, and it has taken action.
The result has been a series of policies that include punitive interest rates for mortgages on second homes, a ban on the purchase of third homes and, more recently, deliberate action by the central bank to keep short-term interest rates well above the rate of inflation. Zhou Xiaochuan, the governor of the central bank, the People's Bank of China, reaffirmed tight credit policies on Saturday, saying that he did not think the economy was in sufficient trouble to justify monetary policy stimulus.
In a country where real estate sales offices have become ubiquitous and tower cranes are jokingly described as the national bird, the question is how much further the real estate market will slow, and whether its troubles will spill into other sectors of the economy, notably the banking system.
In addition to delaying new projects, developers have sharply reduced the speed at which they complete existing projects, furloughing workers and shipping minimal steel to building sites. Economic data released on Tuesday also included a deceleration in industrial production, with growth in steel and cement output slowing to a crawl. Retail sales also grew more slowly than expected in April, with the furniture market stalling as fewer families moved into new homes.
Su Hua, a real estate broker in Shenzhen, had his highest commissions ever last year, as a speculative frenzy prompted families all over China to buy and sell apartments at a brisk pace. But he sat in a deserted office late last week with several silent phones on his desk.
His business has been cut in half so far this year. More worrisome for him is that the drying-up of the market shows no sign of ending.
According to Centaline, one of largest real estate brokerage firms in China, transactions over the May 1 holiday weekend fell by 50 percent in Beijing and Shanghai from a year ago. The weekend is traditionally one of the two biggest real estate buying times of the year, along with a weeklong national holiday at the start of October.
"There is not much else I know how to do," Mr. Su said. "Maybe I will consider selling insurance on the side, if business continues to slow."
A handful of real estate restrictions are already being rescinded. State-controlled banks in Shenzhen, adjacent to Hong Kong, have in the past two weeks stopped charging the extra half percentage point to one percentage point above the regulated national benchmark rate for mortgages that they had been collecting in recent years. …