8/8/2019 Real Estate a Spreading Sinkhole

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Beijing had sought to rein in housingprices with measures such as manda-tory down payments o at least 30%and a steep tax on pro ts earned rom

ipping homes within ve years o purchase. Now those measures arestarting to bite andwith economicgrowth slowing and the stock marketdown by more than 60% this yeartheres less demand or housing thandevelopers had anticipated.

easing the rules

Now Beijing is scrambling to keepprices rom alling too ast. OnOct. 22, the government exemptedland sales rom the value-added tax,cut down payments or irst-timehomebuyers to 20%, rom 30%, and

slashed a property trans er tax ornew buyers to 1%, rom as muchas 3%. A ter ive years o tighten-ing credit, the central bank has cutinterest rates twice in the past twomonths and eased reserve require-ments at banks to promote morelending. And some cities have intro-duced subsidies or buyers o smallhomes and allowed mortgages o upto 30 years, compared with a previ-ous maximum o 20 years.

A prolonged drop in property pricescould create big problems or China.Real estate accounts or 25% o all

investment andabout 10% o grossdomestic product inthe mainland, aboutdouble the level in theU.S. Cities in Chinao en pay or in ra-structure by sellingland to developersand property-relatedincome accounts oras much as a third o government spend-ing, brokerage MerrillLynch estimates.Beijing cannot a -

ord a collapse in thehousing sector, saysJing Ulrich, chairmano China Equities atJPMorgan in HongKong.

The slowdown insales already is tak-

ing a heavy toll on Chinas more than60,000 developers. Many borrowedheavily to nance growth as real estatevalues skyrocketed. Now, with pricesheaded south, dozens have gone belly-up in recent months. Typical o themore troubled companies is ZhejiangZhonggang in the eastern city o Jin-hua. Its chairman skipped the countryin October, leaving behind some $20million in debt and dozens o angry

amilies locked out o homes they hadpaid or. (The company couldnt bereached or comment.)

Next year is looking very tough,says Christopher Lee, director o corporate ratings at Standard & Poorsin Hong Kong. We could see somehigh-level de aults. ^

By F d k B fo d C -C t c

Autumn is usually thebusiest time or real estatesalesman Wang Yaodong.

Last September and October, orinstance, he sold more than a dozenluxury townhouses in western Shang-hai, but this year he has sold only one.Everybody is waiting or prices to

all, Wang says.Wangs lament is a common re rain

in China these days. During the GoldenWeek holiday in early October, nor-mally peak season or home buying,sales in the southern city o Shenzhen

ell by a third rom the previous weekand the average selling price was nearlyhalved. In Beijing,so ware developerAnswer Li has beenlooking at housesin the $100,000 to$200,000 range,but hes holding of because he ears

urther declines. I dont dare take theplunge and buy a home, Li says.

Across China, property sales ell 15%in August over the previous year. InBeijing, theyre of more than 55% andin Shanghai 39%, reports the NationalBureau o Statistics. Prices across thecountry registered a slight decline in Au-gust, the rst time in years they haventincreased. In the south, where thedownturn began last year, prices are of by 30% in the past 12 months. There is abig likelihood that next year will be evenlower, says Li Yong, general manager o real estate brokerage Century 21 China inChangsha, an industrial city 700 mileswest o Shanghai.

Thats a dramatic shi . Since 2005,

088 China

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Re l Est te:a Spre d g S k oleChinas all-important property values are plunging,hammering consumers and local governments

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