Property joy could be short-lived
Updated: 2007-12-28 08:03
Finally the surging property prices have begun to lose steam following measures to apply the brakes on the red-hot sector. People who could not afford new houses are jubilant, waiting anxiously for the prices to slide, while experts are cautious on whether it represents a long-term trend. So will property prices fall?
Three years ago, one of my friends wanted to buy a second apartment. He spent three months visiting a dozen projects, and narrowed his choices to several. He was urged by the "hospitable" salespeople to hand in a down payment because prices could rise any time.
He was not moved by what he believed were sales tactics. He was wrong, and the prices did shoot up in leaps and bounds. He hesitated again and again until he dropped his plan.
Millions of people have experienced similar scenarios. Some, however, were wiser. While cursing the developers for the exorbitant prices, they clinched deals, and have since enjoyed at least a 50 percent appreciation of their property.
But more and more people could not afford new houses. They blamed the government and vented their anger on the Internet. For them, the iron fist the authorities have been wielding recently is most welcome. So is it time for them to celebrate?
In my opinion, prices will start to pick up again in April, though at a steadier pace. There could be a lull after the Olympics, but I really doubt prices will substantially drop, as many have predicted. I do not think you can buy cheaper houses in the future.
I am not surprised I am among the minority. According to a survey by Sina.com, 58 percent believe property prices will fall in the coming two years, and half even think prices will continue to slide even after that.
Emotions do not beat reason. Since the days of Adam Smith, it has become increasingly accepted that supply and demand will determine prices. China has 122 million hectares of arable land, of which 120 million has been set aside strictly for farming. About 550 million people now live in urban areas. It is estimated another 600 million rural residents will enter the cities in 20 years. One does not need to be wise to envision how scarce land will be, and how expensive it will become.
The local governments, despite constant rhetoric against inflating property, actually welcome the prices hikes, and have even become the invisible hands behind growing land prices, as revenue from land transfers make up a substantial proportion of their local revenues. That partly explains why prices have continued to climb despite macro-control polices in the last few years.
With the appreciation of the Chinese currency internationally, and its actual depreciation within the country because of inflation, it is difficult for the Chinese, who have a tradition of buying houses whenever they accumulate wealth, not to invest in property.
There was a lot of fuss recently after property tycoon Wang Shi, chairman of China's largest developer Vanke, said the sector was near a turning point, and infuriated his competitors by slashing as much as 15 percent on the prices of new houses in Guangzhou. He advised people not to buy houses within the next three or four years, because after that period houses would be better built and more cost effective. He gained applause.
But make no mistake, it was more the tactic of a shrewd businessman than rational analysis. On the one hand, he made the remarks to appease the regulators and the public. On the other, he knows well that if people hold on a while, the smaller developers are more likely to go bankrupt. Then it could not be a better time for the bigger fish like Vanke to swallow the weaker ones.
So for house buyers, think before you decide not to leap.
E-mail: gaoanming@chinadaily.com.cn
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