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A bet on home prices

(China Daily)
Updated: 2008-07-05 11:35

The public apology that Xu Dianqing, a professor from Peking University, recently promised to make to residents in Shenzhen has made the ongoing debates about housing prices dramatic.

The professor bet last July that housing prices in Shenzhen would not fall in a year.

However, after a bad first half year for property developers across the country, things obviously turned ugly for optimists who believed that house prices will only go up.

Latest statistics indicate that property prices in China's 70 large and medium-sized cities rose only 9.2 percent year-on-year in May, with the growth rate 0.9 percentage points lower than in April.

Worse than the national average price level, housing prices in a number of major cities that used to lead the increases have either flattened or declined.

Industry statistics show that the proportion of sold floor area to finished floor area in Beijing, Shenzhen, Guangzhou and Nanjing has dropped to below 0.7, putting more pressure on property prices.

Prices in Shenzhen plunged from above 16,000 yuan ($2,318) per sq m early this year to only 11,000 yuan in May, roughly the same level as a year ago. As a result, local people who now find they had paid too much for their new houses understandably are angry with property developers as well as bullish experts like Xu.

The ongoing correction of some local property markets is certainly painful for a number of home-buyers. Yet, a moderate growth of housing prices as a whole is much needed for stable and sustained development of the real estate sector, a pillar industry of the national economy.

Last year's runaway housing price hikes have hugely increased the burden on people and boosted fixed-asset investment against the government's efforts to prevent economic overheating.

Shenzhen has become a victim of its rocketing housing prices as some companies have moved away due to rising costs.

Now, continuous shrinking property transactions and dropping prices have prompted more people to hesitate or even change their minds about buying.

The current sluggish market, however, does not point to a dim outlook. Given China's steady pace of urbanization, it is fairly predictable that the country's housing boom is far from over.

In a sense, Xu is right in predicting the trend but wrong about the timing.

It must be embarrassing for Xu to admit he had lost his bet. But the ongoing adjustments to the property market, together with other tightening measures, may help pre-empt a post-Olympic downturn in the Chinese economy. That surely makes his apology worthy.