Home shoppers sidelined by high expectations reached a new turning point in recent months: They stopped expecting prices for newly built homes to decline, and finally took the plunge. Market data from various regions across the country suggest a bounce-back for the real estate market, with sales and prices generally rising in the first week of September -- the start of the Chinese property sector's traditional Golden September-Silver October sales period. August sales figures from listed developers show their capital positions have improved significantly overall, based on higher transaction levels and cash inflow. Major property developer Vanke reported a 149% jump in sales revenues year-on-year in August to about 12 billion yuan ($1.78 billion) -- a new one-month record for a developer in China. R&F Properties said its sales climbed 45% in August, while the Poly Real Estate Group reported a 66% increase. An analyst with Guotai Junan said the volume and price increases can be tied to moderate rise in new-home supply, pent-up demand among shoppers who had delayed purchases and were uncertain about the effects of regulatory measures, and vigorous demand for investment options among investors seeking to hedge against inflation. Moreover, the analyst said, housing prices have generally stabilized after months of tumbling. And with no signs of capital difficulty among developers, it's now unlikely that the drastic price-slashing seen after the global financial crisis began in 2008 will return. But neither are there any signs that the government intends to loosen regulatory controls imposed earlier this year to discourage speculation. In fact, regulators have been signaling recently that such efforts would be strengthened. That's a bad signal for the market, said analyst Ma Guangyuan. He said the policy environment has changed radically this year, making it impossible for real estate to stage the kind of thorough, dramatic recovery that stimulated the market in 2009. Supply and Signals The actual number of newly built homes offered for sale in July and August fell from market expectations, and industry forecasts said September's supply also would also be below expectations. In Beijing, data from information provider Yahao Real Estate show that only 17 of 34 new projects on the city's list of properties ready for sale were actually rolled out in July. Statistics from the data monitoring firm SouFun show 46 general residential projects were scheduled for launch in Beijing in September, continuing a summer-long upward trend. But industry insiders predicted actual launches would be significantly below plans for the month. Half of these recent projects are located in on the city's fringes, noted Liu Yuan, senior manager at Centaline Research Center. Moreover, he said, some developers are holding back projects. Xue Jianxiong, an analyst with E-House (China) Holdings Ltd., told Caixin developers started delaying project launches after new regulatory measures came into force earlier this year, and some even cut supplies by reducing new project starts and slowing the construction pace at ongoing projects. Data from China Real Estate Information Corp. (NASDAQ:CRIC) show that in Shanghai, the supply of new residential space plummeted to only 500,000 square meters in August, after flat-lining at 510,000 square meters in July as well as June. Offered for sale in Shanghai in May were 940,000 square meters, and a whopping 1.28 million square meters in April. Yet the housing resale market has shown clear signs of recovery. Figures from a Centaline index show the number of homes resold in five major cities rose up to 50% in August from the previous month. Prices rebounded significantly in Shanghai and Guangzhou. Fan Xiaochong, vice president of developer Sunshine 100, said it's normal for transaction levels to climb after a slowdown that lasts several months. The latest trend shows the market is healthy, he said, and that there's no reason to expect a drastic increase in prices. Fan argues the recovery is mainly a phenomenon stemming from pent-up consumer demand, and that speculative demand remains suppressed due to tight credit conditions. Fan's views are supported by credit figures. China Construction Bank the country's largest mortgage lender, reported a 17.5% increase in home loans in the first half of this year compared to end-2009. First-time buyer loans accounted for almost 90% of the more than 149.6 billion yuan handed out during the period, said bank Chairman Guo Shuqing. Loan applicants are buying homes to live in, not flip or hold for investment. As a result, small units are selling well while the luxury housing market remains cool. Watch the policymakers Yet tight credit conditions have been pushing prices higher. Caixin learned that Chongqing banks have gotten stingier toward housing loans of late, with banks withdrawing what had been a 30% interest rate discount for first-time home buyers. Instead, loan customers are being offered a 15% discount. In addition, Beijing media reports say 80% of banks in the capital have started implementing a 15% interest rate discount policy for first-time buyers. And some banks have cut mortgage loans to 60% of a total price from 80%. And from a growth perspective, a duller shine can be expected for this year's Golden September-Silver October period. Analyst Xiao Jian of Southwest Securities said brisk sales in late summer did not change the fact that total sales volume growth is slowing on a year-on-year basis. In fact, sales and volumes may be shrinking. Liu Xiaoguang, president of Beijing Capital Group Ltd., said developers fear a higher price in the future might trigger new regulatory restrictions. They also worry that the government might react to soaring prices by introducing property taxes. A report by E-House China said if regulators determine their controls failed to reach pricing objectives, the government may look at additional steps that put more financial pressure on developers. They could choose to implement a land value increment tax, for example, or they might consider new rules for pre-sale payments and development loans. Regulators also could decide to dramatically increase the supply of build-quality land. Developers might react to such moves by buying newly available land and reducing home sale prices at their projects to raise cash, thereby reducing unsold supply. Fan thinks regulators have wanted to curb price steep increases in a handful of cities, and that they have achieved that objective. However, as a result, housing prices nationwide have not seen a drastic correction many consumers hoped for. As a result, he said, universal home ownership in China remains a long-term goal. A recovery for land market sales since August is another factor that may trigger stricter policies. In September, prime lots have re-emerged in Shanghai, Guangzhou and Wuhan. Regulatory authorities have begun to monitor the recovery intently. Between August 13 and 21 alone, Vice Premier Li Keqiang emphasized twice that the government would continue implementing real estate regulatory policies to curb speculative activities. Nevertheless, positive signals are attracting new players to the real estate sector. An analyst at Bank of China told Caixin that many entrepreneurs in the steel and other industrial sectors have switched to property development for investments, making developers easier to obtain financing. Insurers are jumping in the game as well. On September 5, the China Insurance Regulatory Commission gave a green light to commercial real estate and office property investing by insurance funds by way of debts, equities or property rights. Insurers are expected to boost funding options for developers. A report by Centaline estimated total insurance industry assets at 4.52 trillion yuan at the end of June, and that as much as 452 billion yuan of this amount might be invested in real estate.
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