China Real Estate - Investing in Real Estates in China
China's Real Estate Industry in Steady Performance in May 2005
BEIJING – China’s performance index of real estate industry stood at 101.83 in May this year, the same level as that in the previous month, but dropping 3.28 points as compared with the same period last year, according the monthly report issued by the National Bureau of Statistics.
Index of selling prices of commodity housing was 107.11, plummeting 3.46 points from the previous month, but up 2.16 points over the same period last year. The country’s average selling price of commodity housing hiked 8.9% in the first five months, of this, selling price of residential housing went up 11.3%; price of buildings for commercial use, up 4.1%; and office buildings, down 4.6%.
Index of commodity housing lying idle was 103.89, rising 1.57 points over the previous month, but dropping 3.69 points year on year. By the end of May, the country had 103.2 million square meters of housing lying idle, increasing 6.2% year on year, including 59.33 million square meters of residential buildings, down 0.4%.
Index of real estate development investment was 100.09, up 0.92 points month on month, but down 2.32 points year on year. The country’s investment in real estate development topped 464.4 billion yuan in January-May, up 24.3% year on year. Of this, investment in residential buildings was 310.4 billion yuan, up 21.8%, and that in low-cost residential buildings was 14.5 billion yuan, down 16.7%.
Index of land development area was 93.17, down 0.29 points from the previous month and 5.98 points from the same period last year. The country completed combined areas of land development amounting to 60.16 million square meters, down 7.2% year on year.
Index of housing construction area was 102.90, up 1.15 points month on month, but down 5.93 points year on year. The country completed housing construction areas of 1.063 billion square meters in the first five months, an increase of 18.8% year on year. Included were 821 million square meters of residential buildings, up 18.3%; office buildings, 47 million square meters, up 15.8%; buildings for commercial use, 134 million square meters, up 21.2%.
Index of sources of funds was 100.08, up 0.73 points over the previous month, but plunging 6.65 points from the same period last year.
The sources of funds of real estate development enterprises in the
country amounted to 775.3 billion yuan in the first five months of this
year. Of this, 153.1 billion yuan were domestic loans, up 8.7%; 258.6
billion yuan were funds raised by enterprises, up 34.6%; 294.9 billion yuan,
earnest money and advanced on sales, 294.9 billion yuan, up 24.7%, and
foreign funds, 11.2 billion yuan, up 41.7%. (XBW)
China Real Estate Market - A Paper Published in 2000
Compared with U.S. and other developed markets, China's real estate industry is less experienced and immature. Currently, there are approximately 25,000 real estate brokerage agencies employing over 200,000 agents. In addition, an estimated 20,000 property management companies employing over 2 million people exist in China. Many of the brokerage companies, however, may not possess business licenses and qualification certificates. For instance, it was reported that, of the 4,000 real estate agencies currently operating in Beijing, only about 700 have business licenses.10 In a recent inspection in Shanghai, 982 real estate brokerage firms were found guilty of operating without registration with the appropriate government agency.
The government has received many complaints about real estate malpractices in recent years. Among them are misleading advertising, low quality housing sold at a premium price, delayed transition of sold properties, etc. A survey by Guizhou Property Exchange Center discovered that many consumers were very disappointed by the poor services they received from the real estate agents in Guiyang City, the capital of Guizhou province with a population of 1.36 million. Prospective home shoppers and renters indicated they were reluctant to use the agents' services because of the bad experiences.
During the middle and late 1990's, real estate markets in big cities were overheated. Price of prime land in Beijing has fallen from the highs experienced in the boom development period of the early 1990s. In 1999, the vacancy rate for Grade A buildings was 30% in Beijing and 38% in Shanghai. Some experts estimated that the vacant space might take two to three years to be absorbed if the recent trends in demand continue. The market now seems to be picking up the momentum when many residents are upgrading into bigger housing.
A research report by Shanghai Real Estate Economic Association for the preparation of WTO entry cited that, in comparison with companies in developed countries, China's local real estate companies have the following weaknesses: 1.Lack experiences because of short history; 2. Limited competing capability due to smaller sizes; 3.Insufficient capital and backward marketing means; 4.Lower management skills; 5.Not service-oriented in general.
To regulate the market and protect consumer's interest, the government released the revised Model Commercial/Commodity Housing Purchase/Sell Contract in September 2000. The model contract serves as a standard contract and allows potential real property buyers and sellers to understand what are involved in a real estate transaction. The government hopes it will eventually help consumers reduce the risk in home purchase.
The overall real estate market in China is dynamic and grows fast in terms of capital flow and development speed in spite of the problems. The resale housing market is almost nonexistent in China a few years ago. In 1999, the government completed its basic policy for secondary housing market and encouraged urban residents who owned their homes to sell smaller, older, and low-quality houses in exchange for bigger, newer, and high-quality ones. Some cities, e.g. Shanghai and Ma Ansan of Anhui province started to experiment the secondary market earlier than other cities in China. Since 1996, there have been 67,333 residential properties being put for sales on the market in Shanghai, accounting for about 5% of the total sold properties there in the same period. In 2000 alone, about 7.5 million square meters (80.73 million square feet) existing houses were sold in Shanghai. The total transaction amount was valued at RMB 65.6 billion (about U.S. $8 billion).11 There are over 5,000 foreign funded real estate companies, including China-foreign joint ventures (JVs) or cooperative enterprises, and over 1,000 wholly foreign-owned companies currently operating in China. Hong Kong is the top investor, accounting for over 75% of total foreign investment, followed by the United States and Taiwan.12 The following chart shows the amount of total foreign investment in the Chinese real estate market in recent years. There was a drop in investment in 1997 and 1998 that could be attributed to the Asian finance crisis and over heating of the real estate market in late 90's.
The housing industry has become a powerful engine behind the rapid economic development in China and contributed about 1.5 percentage points to 1999's 7.1 percent economic growth.
Source: Zhongguo Waizi (Foreign Investment in China) April 2000
U.S. government and companies have participated in the development of the Chinese housing market. In 1999, President Clinton called on the Department of Commerce to send U.S. experts to China to discuss how to build a stronger housing finance system by, for example, strengthening property rights and developing stronger mortgage markets. On November 1st, 2000, then U.S. Housing and Urban Development (HUD) Secretary Andrew Cuomo and Chinese Construction Minister Yu Zhengsheng signed an agreement in Washington. Both nations agreed to create a U.S.-China Residential Building Council (RBC), which was expected to provide new housing opportunities for families and to create housing industry jobs and stronger economy. The new Council would participate in activities that the U.S. and China undertake to exchange information and to cooperate on housing development.
Source: Ministry of Foreign Trade and Economic Cooperation State
According to a survey reported in the China Construction magazine, about 59% of the urban residents in China now own their own homes. The average living space for most of urban residents who own their homes is 50-80 square meters (538-861 SF). The majority of households surveyed have 2 to 4 people. About 19.7% of respondents live in rented dwellings and 11.5% receive rental subsidies from their employers or work units. It was also reported that 21.9% of the residents surveyed indicated they would like to purchase new houses with a size of 70-150 square meters (754-1615 SF) within 5 years. Family savings were the main financing resources, which stood at about 6700 billion RMB (1 trillion U.S. dollars in 2000. However, government funding and bank loans were also among favorite options.
Current Housing Market Survey
Housing sources Percentage
Source: Zhongguo Jingji Shibao (China Economic Times), Oct. 11, 2000
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