Analysts challenge claims of spring "green shoots" in Chinese property

Special Report: Global Financial Crisis

by Xinhua Writer Jiang Xufeng

BEIJING, April 16 (Xinhua) -- In 2007, in
the heady days before the financial crisis, construction noise resounded round
the clock in Beijing as it raced to prepare for the Olympics.

At that time, migrant laborers could avoid the dirty
work of building apartments and make 100 yuan (15 U.S. dollars) a day simply by
showing up long before dawn and joining the lines at real estate developments.
There, according to media reports, they held places for actual buyers, who paid
them to wait at sales centers, which functioned on a first-come, first-served
basis for purchase rights.

At that time, the average daily wage on a
construction site was between 70 yuan and 80 yuan, so it was actually more
lucrative to pretend to be a buyer than to build actual apartments.

Now, however, the press in the capital report that
it's the developers who have to pay, and they will only offer about 50 yuan, or
half as much as in 2007, to migrants willing to pose as potential buyers to lure
real investors.

It might just be urban legend, and of course, there's
no direct correlation between what migrant workers earn to pose as home buyers
and what those apartments cost. So maybe it's just a coincidence that a renowned
Chinese expert predicted that urban home prices might halve in the next two
years.

Cao Jianhai, a researcher with the Chinese Academy of
Social Sciences (CASS), a central government think tank, has predicted Chinese
urban home prices would probably drop by 40 to 50 percent over the next two
years. Cao told Xinhua that the high apartment inventory level, the economic
slowdown and slower-growing incomes were keeping the lid on urban home prices.

Estimates from researchers indicate that just in
Beijing, about34 percent of the housing was on the market and it could take as
long as 20 months for all those flats to find buyers.

That's because housing has become unaffordable for
many, according to a "blue paper" research report issued last month by the
Beijing Academy of Social Sciences (BASS), a think tank of the city government.
The report said housing prices in the capital were high compared with local
incomes and international standards.

LOW VISIBILITY

But the condition and direction of China's property
market is not so easy to ascertain. These think-tank studies, government
property price reports, developers' data and anecdotal evidence paint a
confusing picture of prices, affordability and other factors.

An online debate between the BASS and a noted
property mogul shows how contentious these issues and figures are.

The BASS said in its paper, released March 31, that
the ratio of home prices to Beijing residents' incomes far exceeded the United
Nations' suggested ceiling of 3:1 and that of the World Bank, which is 5:1. BASS
predicted that apartment prices would fall next year, but it did not give an
exact range.

"The average private-sector housing price in Beijing
was about 13,000 yuan per square meter as of November, which translates into
910,000 yuan for an apartment of 70 square meters for a family of three," said
Dai Jianzhong, an BASS expert and one of the blue paper authors.

Tang Jianwei, an economist at the Bank of
Communications, China's fifth-largest lender, told Xinhua Thursday that in most
big cities in China, per capita housing area averaged 27 to 30 sq m.

Qin Rui, a senior analyst with Beijing-based 5i5j
Real Estate Service Co., said Thursday that the average new apartment price in
Beijing in 2007 was about 14,000 yuan per sq m.

If a family makes a 30-percent down payment, they
face monthly payments of about 4,000 yuan for 20 years. In China, buyers must
make at least a 20-percent down payment for new residences and one of at least
30 percent for a second-hand flat. New flats are heavily favored in China, by a
ratio of at least 4:1, according to Qin.

Since the average monthly disposable income in
Beijing for a three-person household was 5,672 yuan in 2008, that would leave
less than 1,700 yuan for all their other expenses, Dai added.

That would mean each person could eat a bowl of beef
noodles three times a day at a local food stall, leaving virtually nothing for
any other expenses such as clothing, utilities and commuting costs.