Taking a lesson from the collapse of the American real estate market that overwhelmingly contributed to the current global financial crisis, the Chinese government has had the difficult task of reigning in easy credit without stifling the market. The soaring price of housing coupled with the plunging sales of new homes has created anxiety that credit must be tightened further if the property bubble does not being to show signs of substantial shrinkage. Although the Lunar New Year holiday is always a slack time for the economy, real estate transactions involving the sale of new homes were unusually slow, with Shanghai reporting the lowest volume of sold square meters in 5 years. Unyielding prices, low supply, and uncertainties about whether the government will continue to implement policies to cool down the overheated real estate market, have contributed to the current buyer freeze.
This is a topic of hot debate in the current joint session of the legislature, with many suggesting a change in the land-auction system so that price isn’t the only determining factor. Also being discussed are ways to reduce local governments’ excessive reliance on revenue from land transfers. More than 1.08 trillion yuan (US$158 billion) was collected from land transfers in 70 major Chinese cities last year, an increase of 140 percent from 2008, according to China Index Academy, a major real estate research organization.
The high prices, especially in inner city districts, have been maintained due to short supply. Many real estate developers are more reluctant to put their homes on the market when few people are actually buying. New home supply in Shanghai, for example, plunged 70% to 220,000 square meters last month, following a dive of 47% in January.
The lower volumes, however, were accompanied by the highest average prices on record. Last month, the average price of existing properties rose 11 percent from January to 15,200 yuan per square meter, the first time prices have climbed above the 15,000 yuan mark.
“The repercussions of an inflated real estate market have been a painful lesson to the world,” Scott Garner, director of the Lehman, Lee, and Xu Shanghai office commented. “Fortunately, our firm has substantial real estate experience regarding preparation of all types of acquisition and transfer of property land use and lease rights documentation, advising services to landlords, tenants, and real estate brokerage companies, as well as well as a multi-city base where we closely monitor all fluctuations in the Chinese market. We have the ability to custom tailor our services to both foreign and domestic clients.”
For more information about Lehman, Lee & Xu, please visit the firm’s website at www.lehmanlaw.com or feel free to e-mail the Beijing office at
mail@lehmanlaw.com
.