x Abu Dhabi, UAEFriday 21 July 2017

China's property scene sees a rebound

International The property ads never really dried up for very long in China's big cities, and there are still plenty of cranes on the horizons.

BEIJING // The property ads never really dried up for very long in China's big cities, and there are still plenty of cranes on the horizons. Now the government's 4 trillion yuan (Dh2.14tn) stimulus plan, combined with an unchanged need for housing in the world's most populous nation and a strong savings rate, means the property market is showing very marked signs of a rebound.

"The recovery is real," said Anna Kalifa, the vice president of business development at GTC Real Estate China. "It's not 180 degrees, but a shift in the right direction. People held their breath for eight months. The difference between China and the rest of the world is that the rest of the world never had any money. You can't overestimate the value of savings, and this is the differentiator." The investment bank Goldman Sachs says that prices have gone up in eight out of 15 cities in China. Thomas Deng, a strategist with the bank, said Chinese property developers were starting to acquire land again after clearing inventories, and he expected investment and consumption in the broader economy to be lifted by a revival of the property sector.

Julien Zhang, the managing director of Jones Lang LaSalle in Beijing, said the demand for high quality office buildings in the capital "is slightly rebounding, domestic firms are aggressively taking high quality space, and demand from strong international firms with plans to expand their business in China is also picking up." Price appreciation in more than half of China's big cities is a sure sign that people are looking at property, and buying property too.

"Our sales have gone up tremendously," Ms Kalifa said. "The reason for this is that nothing changed in China in terms of the need for new houses. In China there are very different fundamentals compared to the United States. People have money here to put down deposits." The investment bank UBS believes recovery in the property sector is crucial for sustained recovery in domestic demand, and the bank had expected a rebound in property investment from the middle of this year. June housing starts were the most encouraging evidence of this. The starts of new construction rose by 12 per cent year-on-year in June, the first positive growth in 12 months. "The rise in starts is the turning point that we have been waiting for," two UBS economists, Wang Tao and Harrison Hu, said in a report.

The recovery in the market is being seen right across the board, in first-tier cities such as Shanghai, Beijing, Nanjing and Guangzhou as well as second-tier cities, where the property bubble never really took place, as the market was starting from a much lower base. There were signs of a price correction in the big cities, due in part to the strong, swift rise in prices last year. In Beijing, for example, the market rose strongly before the Olympics, but the momentum was never going to be maintained. Shanghai property analysts are seeing a rise in prices before the city's World Expo fair next year.

The driver behind the recovery has been the government's mammoth stimulus plan. Since this was introduced in December, Chinese banks have lent nearly $1tn (Dh3.67tn) to support the domestic economy. Wei Jianing, an economist at the development research centre of the state council, estimates that 30 per cent of these new bank loans have gone into property. In order to stimulate demand, mortgage rates were cut, and the percentage that had to be paid as a deposit was lowered. Property taxes and fees were also cut, and developers were given easier access to bank credit.

Local governments got in on the action by renovating run-down areas of cities, which included developing accommodation. There have also been structural changes in the market. Two years ago, the government introduced a number of measures to rein in demand in the property sector, amid fears of overheating. Now Beijing needs to allow more breathing space in the property market to help with recovery, and freeing up controls on the property sector is a crucial part of this.

An important dimension in the Chinese market is the cultural differences at work. Chinese people tend to live with their parents until they get married, and that means they have a lot more money saved when it comes to buying a house. In addition, the "one child" policy, which restricts most Chinese families to a single offspring, means a whole family of aunts and uncles will invest in one child's future, adding to the savings available when that one child wants to buy a home.