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Real Estate Market Undergoes Slump Amid Many Houses Left Unsold

Real Estate Market Undergoes Slump Amid Many Houses Left Unsold

Posted October. 17, 2002 23:13,   


There are ample signs that the real estate market in China becomes unstable. Nowadays, many newly built houses, which were sold quickly in the past, do not find their owners.

A crisis is emerging in the real estate market, as luxurious houses are left vacant in metropolitan cities due to oversupply, China`s communist party newsletter People`s daily reported on Oct. 16. There is a concern that the real estate bubble could burst out, unlike the 1994 market volatility, in which real estate prices skyrocketed as much as 27 percent.

Ñ Bubble at the real estate market = According to statistics recently announced by China`s national statistics office, the vacancy rate of buildings and houses up for sale rose 14.1 percent in August over the same period of the previous year. In those realty products, the proportion of the products that have remained vacant for more than a year increased to 43.97 million sq. ms., up 11.5 percent on a year-to-year basis.

In particular, the newspaper stressed, “As of July, the amount of money that is tight due to the unsold realty products amounts to 250 billion Yuan (about 37.5 trillion won). The real estate sector has the largest assets that do not generate profits among China`s industries.”

The real estate bubble is clearly shown in regions such as Beijing, Shanghai and Guangdong Province, where economy has rapidly grown. As for Beijing, realty products that totaled 49.7 million sq. ms. were constructed during the first eight months this year. In these products, 42.8 sq. ms. were sold. As of late June, vacant areas reached 7.101 million sq. ms. and luxurious houses, such as villas and expensive apartments amounted to 5.72 million sq. ms.

In Guangdong province, the total size of the realty products that were constructed during the first half of this year is 8.928 million sq. ms., four times the size of realty products sold last year.

Ñ Reason why realty products are not sold = It is because construction companies are focusing on building medium class or expensive houses, which average Chinese citizens cannot afford.

According to the national statistics office, last year, per capita disposable income amounted to 11,600 Yuan (about 1.74 million won) in Beijing, and 12,900 Yuan (about 1.935 million won) in Shanghai. Meanwhile, average sale prices for one sq. m. of house were 4,716 Yuan (about 707,400 won) and 3,535 Yuan (about 530,250 won), respectively in Beijing and Shanghai. In order to buy a medium quality apartment, an average citizen in Beijing should save all his disposable income for 40 years.

The fact that a mere 1.1 percent of those residing in cities do not have their own homes due to the distribution of houses before the reform in China is contributing to the realty market slump.

However, local governments and construction companies shun building small-sized buildings because they should give tax breaks to dwellers.

Ñ Countermeasure of Chinese authorities = Chinese authorities worries that the ongoing slump in the realty market will make more financial institutions who extended loans become insolvent. So, the department of real estate management in Beijing revised the real estate purchasing plan, which discriminates against foreigners. Under the revised plan, which took effect last month, foreigners can buy medium class or luxurious real estate products, except for small-sized products. Realty experts predict that other cities such as Shanghai are likely to follow suit.