One of China’s most outspoken real estate tycoons says the country’s housing prices will continue to increase due to exorbitant land costs, and expects commercial housing transactions to scale unprecedented heights in 2017.
Ren Zhiqiang, a member of the Chinese People’s Political Consultative Conference who first came to prominence as the chairman of Huayuan Real Estate Group, said at the 17th annual 21st Century Real Estate Forum that ongoing gains in land prices will push housing prices even higher, despite the launch of heavy-handed policies by the Chinese government to deflate any potential bubbles on urban property markets.
Ren cites official data pointing to across the board gains in the average commercial, residential and industrial land prices of China’s major cities to 7,088 yuan/square metre, 6,200 yuan/ square metre and 793 yuan/ square metre in the second quarter.
The current integrated national land price (excluding land for industrial use) stands at 6,644 yuan/ square metre, while in China’s east housing prices are 10,387.4 yuan/square metre on average.
In Ren’s opinion this comparatively narrow spread between housing and land prices means leaves housing developers in “essentially a non-earning or low profit condition.”
The problem is even more severe in other parts of the country where average home prices are lower, and in some cases even fall beneath the integrated national land price. In central China, western China and the Chinese north-east average housing prices are 5,955 yuan/square metre, 5,830 yuan/square metre and 6,305/square metre respectively.
“Looking at the land supply situation, the necessary conditions are already in place to push housing prices even higher.”
In addition to rising housing prices, Ren Zhiqiang also expects market transaction volumes to be strong in 2017, and sales levels to hit historic highs this year in terms of both floor space and value.
“Even if there is only 1% or 2% growth this year, this will still be a historic high.”
Official data indicate that China’s national commercial housing sales area was 746.62 million square metres in the first half for year-on-year growth of 16.1%, with a sales value of 5.9152 trillion yuan, for a year-on-year increase of 21.5%.
While Ren does not see the Chinese government’s heavy-handed policies for curbing real estate bubbles having much adverse impact upon housing prices or transaction volumes, he does expect deleveraging policies to affect the debt woes of property developers.
Ren cites data pointing to ongoing declines in the bank loans, bonds and notes and other credit readings for 108 property companies during the period from January to May this year.
This stand in stark contrast to the 850 billion yuan in new debt raised by property companies during the 2015 – 2016 period, higher than the over 800 billion yuan raised during the five years from 2010 to 2014.
As a consequence Ren expects property concerns to face a wave in debt repayments in the near-term, with 330 billion yuan expected to fall due in 2018 and a further 470 billion yuan in 2019.
For this reason Ren sees some property companies as being vulnerable to to cash flow crises should regulators opt to tighten credit and liquidity.