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Reality of the real estate market is really bitter
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The collapse of a 13-storey apartment building in Shanghai symbolizes the future of the Chinese property market. This is the belief of some commentators, but Ren Zhiqiang begs to differ.

One of the leading figures in the realty industry, Ren wrote in his blog that the housing market was still strong. The president of Beijing Huayuan Group criticized a CCTV program for saying the Shanghai project had a profit margin of 360 percent. The actual gross profit in the industry doesn't exceed 100 percent, he contended.

Even if what Ren says is true, how many industries can boast of such a high profit margin? But Ren has other views. "Real estate ought to be a highly profitable industry" is reportedly one of his many boorish remarks that earned him the nickname "Big Mouth Ren".

Other quotes from him include: "Residential property is only for the rich, not the poor," and "Speculation is not a crime, and to ban it is against the Constitution".

Ren has become the target of public criticism. But his forecast of rising housing prices seems to be right this time. After a brief dip last summer, prices are going out of the roof again. The housing market is back to where it was two years ago.

Accompanying the rising prices are heated debates on whether the realty market graph will keep going northward. Unfortunately, no scientific analysis can be done for lack of reliable statistics of land prices and other costs.

One would be crazy to think the income to price ratio, believed to be the basic affordability measure for housing, is still relevant. Experts consider a healthy ratio to be about 1:6, but it is already 1:20 or 1:30 in many big cities.

Analysts who dare to hazard a guess on the realty market are nothing but fortunetellers. But big shots of the real estate industry, with Ren being prominent among them, have joined the hubbub.

Zhang Wei, a Beijing-based IT worker, said: "I've been waiting for several years for the absurdly high price to go down - but it won't, and it may never. People like me are a laughing stock for Ren. "

Not only have housing price shot up again, but also the land transaction market has touched a new high. We wonder how economically viable the projects built on the filthily expensive plots will be. Or will it be a case of "the flour being more costly than bread".

But Ren has said there's nothing to worry. "People should examine the book of the government, not of developers", Ren wrote in his blog. He argued that as long as the government wanted to maximize its gains from land transactions, there was no chance of housing prices going down.

But the land resources authorities have said it is up to the property developers to publicize the costs to avoid creating confusion among consumers. Debates over who should take the initiative to increase transparency in the realty market will go on. But what happens to the consumer, who is always caught in the middle?

Improved cash flow for realtors, a loose credit environment and worries over inflation have combined to push housing prices up. Some banks are reportedly handing out loans to one person to buy up to 35 apartments. How could we forget so soon how the US subprime crisis was caused and what it led to?

Ren may be a "greedy developer without a conscience", but his forecast of a bullish market cannot be challenged, at least for now. And that may not only because he is one of the creators of the realty bubble, but also because he can read the minds of all the other players in the market.

E-mail: yyao1119@gmail.com

(China Daily July 9, 2009)

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