Is the real-estate market in China going back to the game?

Source: Aleksander Kutnik¸ PKF Malta¸ July 2012

From August 2011 to May 2012 house prices were falling every month.  The investors and the lenders had been waiting to see the effects of China’s government and the Bank of China’s efforts to fight the property crisis.

A report issued by China Index Academy showed that the home prices in 100 surveyed Chinese cities rose from May to 8¸688 yuan ($1¸379) per square meters in June. However the average property price in the 10 biggest cities in China amounted to 15¸429 yuan per square meters in this month. This means that prices grew by an average of almost 0.75 percent from May.

Experts said it was a result of the China’s government movement which adjusted its monetary policies to boost the economy. Bank of China cut the benchmark one-year lending rate (by 0¸25 percent to 6.31 percent) for the first time since 2008.  In the meantime the institution decided to cut deposit rates¸ which fell from 3.5 percent to 3.25 percent.

It could be the next landmark in the modern history of China’s real-estate market. The first cycle of change – from November 2011 to December 2011 – brought overall panic¸ when for example the prices in Beijing dropped by up to 35% in one month. Bank of China then warned that “the landmark is coming and the banks are distressed over moving closer to another chain reaction”.  Since that statement the prices had been falling gradually.

Now the positive change in prices is definitely smaller¸ but finally in the right direction. A positive market reaction on central bank movements could soon give some optimism to the market. One of the reasons why these expectations could come true is about to reach its turning point. The first signal of growth could be sufficient and many potential buyers could “go shopping”. It is a fact that for the first time this year China’s properties sales recovered 375¸7 billion yuan in May¸ 19 percent more than in previous month¸ according to statistics issued by Evergrande Real Estate Group Ltd.This is a positive factor which allows the industry to believe that situation on the home market in China is getting better.

However the real-estate market in China should remain supported by government policy. Without it¸ it could be hard to maintain these growth tendencies.  Roy Ling¸ a Managing Director at RL Capital Management¸ an Asia Property Report expert¸ hopes the government will find a solution on how to attract new investors to the market and present interesting entry opportunities in the Chinese market. It is essential¸ because he envisages the volumes and prices of property to fall again in this and the next year.