Chinese property prices are now bouncing back, amidst central bank’s decision to slash its key interest rates to boost the slowing economy.

In July 2012, the average house price in the 100 Chinese cities surveyed rose by 0.33% to CNY8,717 (US$1,377) per square meter (sq. m.) from the previous month, the second monthly rise after eight consecutive months of declines, based on figures released by China Real Estate Index System (CREIS).  On an annual basis, house prices were still down by 1.77% in July 2012.

In China’s top 10 cities (including Beijing and Shanghai), the average house price rose by 0.27% m-o-m but was down 2.32% year-o-year in July 2012, according to CREIS.

Property prices in China rose rapidly from 2000 to 2008, fuelled by low interest rates and cheap credit. The price index for second-hand homes in Shanghai soared 121% (85% inflation-adjusted) from Q1 2003 to Q2 2008, based on data published by Ehomeday.
Residential property investment in China has tripled from 2% of GDP in 2000 to 6% of GDP in 2011. Real estate and property construction in the country currently accounts for around 11% of GDP, according to GK Dragonomics.

As skyrocketing house prices triggered public complaints, the government started a massive public housing program last year. In 2012, the government allocated more than 20,000 hectares of land for low-income housing, according to the Ministry of Land and Resources. In 2011, it started the construction of 10 million units. The government vowed to build 36 million affordable housing units until 2015.

In addition, the government introduced market-cooling measures in April 2010. The campaign intensified in 2011.

• The down payment for first-time buyers’ mortgages was increased to 30% from 20%, while for second homes down payment rose to 60% from 50%.
• Mortgages for third home purchases were prohibited. 
• There were limitations on home purchases in more areas, credit-quota limits and higher benchmark lending rates.
• New property taxes were introduced in Shanghai and Chongqing – between 0.4% and 0.6% in Shanghai, and between 0.5% and 1.2% on luxury homes and newly purchased high-end homes in Chongqing, plus a special tax on second home purchases by people with no business or employment interest in the city.
• In early-2011, Beijing also banned property purchase to those who have not lived in the province for five years, limited the number of homes a native Beijing family could own to two, and allowed only one home for non-native Beijing families.
• Mortgage discount for first-time homebuyers was eliminated.
• The benchmark interest rate was raised to 6.56% in July 2011, the third interest rate hike last year.

As a result, house prices started to decline in the last quarter of 2011.

However, the government is now reversing its policies in an effort to boost the slowing economy.  The People’s Bank of China (PBOC), the country’s central bank, slashed its key lending rate to 6% in July 2012, the second rate cut since the beginning of 2012. In Beijing, the local government also cut bank’s reserve requirement ratio (RRR) in November 2011 to free up about CNY1.2 trillion (US$191 billion) for lending.

With these pro-growth policies, the housing market has been rebounding the past few months.
Aside from the noticeable increase in house prices in recent months, total property sales rose by 6.9% in June 2012 from the same month last year, the first gain this year. In Beijing, home sales also soared 50.6% y-o-y to 25,602 units in June 2012.  This is supported by a separate report conducted by Standard Chartered, which showed that sales of apartments in China’s largest cities have started to increase in Q2 2012.

The total floor area of housing units sold fell by 3.3% y-o-y in June 2012, but this is a significant improvement from a 9.3% y-o-y drop seen in May 2012, according to the National Bureau of Statistics of China (NBSC).

However, the construction sector is still weak. New housing starts in the first half of the year dropped 9.8% from the same period last year, according to the NBSC. Over the same period, land bought by developers also fell 24.3%.

During the year to Q2 2012, the Chinese economy expanded by 7.6%, the lowest growth in three years. Real GDP growth is expected at 8.2% in 2012.  The Chinese economy expanded by 9.2% in 2011, from annual GDP growth rates of 10.4% in 2010 and 9.2% in 2009.

China’s mild economic slowdown

During the year to Q2 2012, the Chinese economy expanded by 7.6%, the lowest growth in three years, due to sluggish external and domestic demand, as well as the government´s efforts to cool the property market. From an average growth rate of 12.7% annually from 2005 to 2007, China has experienced a mild slowdown in recent years, with an average annual real GDP growth rate of 9.6% from 2008 to 2011.

Barclays Capital projects 7.9% GDP growth in 2012, less optimistic than World Bank and the IMF which both predict the Chinese economy will expand by 8.2% in 2012.

To boost the economy, the Chinese government has recently implemented growth-spurring measures, which include the following:

• The central bank has lowered the bank reserve requirements ratio (RRR) three times since November 2011
• The central bank has slashed the benchmark interest rates twice this year
• The government subsidizes energy-saving household electrical appliances
• Approvals for major construction projects have been speed up
• Sixteen provincial-level regions had raised their minimum wage rate, with an average increase of 19.7% in June from a year earlier. 

Annual inflation eased to 1.8% in July 2012, the lowest rate in 30 months, according to the National Bureau of Statistics of China.  In the second quarter of 2012, China’s urban unemployment rate stood at 4.1%, unchanged for the eight consecutive quarters, according to the Ministry of Human Resources and Social Security (MOHRSS). However unemployment is expected to rise in the coming months, as a record 7 million college graduates enter the workforce.

Previous pump-priming measures

Housing sales and property prices began to rise in China in H1 2009, boosted in November 2008 by a CNY4 trillion (US$585 billion) post-financial crisis stimulus package. Buyers took advantage of looser lending conditions and lower interest rates. Developers were able to easily get loans with the lowered capital requirements.

The package included reducing the property deed tax rate for first-time home buyers of small apartments to 1% from 1.5% (January 2009 to December 2009), introducing stamp duty and land value-added tax exemptions, and exempting sellers of residential property from the 5.5% business tax, if sold after more than two years.

Transactions strongly down in Beijing

In H1 2011, transactions of high-end units dropped by 42.6% y-o-y and 12.5% q-o-q according to Jones Lang LaSalle.

There was a 50% q-o-q decline in transaction volumes of forward delivery housing, according to the Beijing Municipal Bureau of Statistics, while the volume of existing houses sold was projected to drop by over 60% q-o-q in Q2 2011.

Shanghai: housing restrictions bite

The Shanghai secondary housing market has also slowed, rising by a monthly average of only 0.04% (-0.87% in real terms) from July 2011 to September 2011. The monthly average dropped by 0.19% in November, according to data from ehomeday, Shanghai’s largest housing information portal.

According to Colliers International, new home sales in Shanghai rose despite the sluggish housing market in August 2011. However, the average transaction price slipped by 1.73% y-o-y to CNY 20,524 (US$3,227.19) per sq. m.

Decelerating mortgage market|

In Q2 2011, outstanding mortgage loans rose annually by 17.5% to CNY 6.26 trillion (US$98 billion), according to the People’s Bank of China (PBOC). However, this the 14th consecutive month of decline in growth.

The deceleration is significant only perhaps by contrast with the strong mortgage market conditions of 2 years ago, in 2009, when outstanding home loans rose by 59.73%.

In 2010, the government laid down a new lending official target of CNY 7.5 trillion (US $1.1 trillion). The banks’ total loans in 2011 are expected to be around CNY 6 trillion to CNY 7 trillion. Measures such as higher bank lending rates or large supplemental fees have been widely adopted by banks. Some even suspended approving mortgage loans altogether.

China’s mortgage market remains small, with a 15.6% ratio of home mortgage loans to GDP.

Factors hindering mortgage market growth:

• Mortgage lending dominated by state-owned commercial banks.
• Banks prefer to offer loans for new housing. The mortgage market for old housing is undeveloped.
• A mismatch between property registration and mortgage policies.
• Banks put lean on real estate developers when buyers default on loans.

The mortgage market is led by four major state-owned commercial banks namely: Bank of China, China Agriculture Bank, China Construction Bank and Industrial and Commercial Bank of China.

Tighter lending conditions

In response to the PBOC’s base rate rises, interest rates on home loans have increased steadily. In June 2011, the weighted average interest rate of home loans was at 6.83%, up by 0.66 percentage points than in March. By October 2011, there were reports some banks in 14 cities, including Shenzhen, Guangzhou and Shanghai, had raised their mortgage moan rates by 5%, to 30%.

Following the upward trend, interest rates for Housing Provident Fund (HPF) loans increased by 0.2 percentage points to 4.9% in July 2011, from 4.7%. The HPF encourages workers to save a portion of their income to buy residential properties. Similar to Singapore’s scheme, when an employee registers with the HPF, the employer opens a bank account under the name of the employee. The employee contributes 5% of his monthly salary and the employer deposits the same amount. Employees can’t withdraw unless they retire, pass away, or leave, but can use the funds to purchase residential properties at below market rate loans from state-owned banks. Government employees and employees of state-owned enterprises must take part, while private sector employees have the option. As of 2007, an estimated 100 million workers were registered.

Rental yields remain low

The rental market in China is heavily regulated, and the system favours the landlord. The landlord is may get large payments for breaches of contract committed by the tenant. Although major cities have no rent controls, other smaller cities may have.

In February 2011, rental yields in some major Chinese cities were between 1.9% and 4%, according to Global Property Guide research. Chengdu was an exception, having healthy yields ranging from 5.2% to 7.5%, with higher yields on larger apartments. Guangzhou and Shenzhen have lower average yields of 3.17% and 2.88%, respectively.

In Shanghai, average ordinary apartment yields were 2.92% while luxurious apartments had average yields of 2.63%. The lowest average yield was in Beijing, at 2.22%.

This year (2011), the government has allocated CNY 103 billion (US$15.6 billion) in its budget for the subsidies to support the development public rental housing, CNY 26.5 billion higher than in 2010.

Year to date, there have been 261 sales reported through our Multiple Listing Service. Even as we continue to the seasonal slowdown, we seem poised to at least mirror last year’s sales figures, and can look forward to a healthier 2013.

This home at 203 Hillspoint Road is listed at $1,699,000. (CLICK TO ENLARGE) Photo courtesy of Coldwell Banker Riverside/ Westport Beach (+) Country Homes

This year’s closed sale figures are fairly consistent with last year at this time, but with two important changes.

The average listing price of sold homes year to date is $1,531,789 and the average sales price is $1,438,221, which represents a 94 percent sales price to list price ratio.

In 2011, the average listing price of the properties that sold during this same time period was almost $80,000 less at $1,450,443, with those homes selling on average at $1,359,376, or at 95 percent of their asking price.

So while we are enjoying what seems like a small increase in average list pricing, it is equally as important that the sales price to list price ratio has decreased. It is optimal to see that percentage at 96 or better.

However, in spite of the mixed signals that the market is giving us, it does in fact show a market that is trying to recover. Slow improvement is good, and the steadier it gets for an extended amount of time is better yet.
The probability of an optimistic 2013 real estate market looks promising.

Market Stats

There are now 318 homes that are actively on the market.The average list price of available homes is $2,144,058 and these properties have been listed for average of 126 days, with a cumulative market time of 236 days.

The median price remains fairly consistent at $1,685,000.

The highest asking price for all homes currently on the market is $27.5 million, and the lowest available priced home is $309,000.

Twenty new listings came on the market in the last seven days, and three homes came back on the market after being under deposit. Twenty-three properties had a price change.

Eight properties have gone under the initial deposit stage, which we call CTS, and four properties went into pending status, which means that the conditions have been satisfied, and the property is scheduled to close.

The average price of these four pending properties was $1,092,975. There are currently 26 homes in CTS status throughout Westport, and 33 properties scheduled to close town-wide, with an average price of $1,437,965.

Closings: Nine homes were reported as sold in the last week, and their average list price was $1,191.589.  Average market time for these sold properties was 64 days. There were 75 status changes in the last seven days.

Condos: There are 13 condominiums that are available, and they have been listed an average of 187 days.
Their average listing price is $563,215, and the median price is $549,000. The highest priced condo in town is listed at $1,075,000 and the lowest offering price is $299,900.

There was one new listing and one home came back on the market after being under deposit. There was one price change.

Two properties went under the initial stage of deposit, and one property entered into pending status, and was listed at $659,000.

There are currently two properties in CTS status, and an additional three homes scheduled to close townwide, with an average list price of $735,667.

Closings: There was one condo reported as sold this past week, and it was listed at $649,000.

Rentals: If you are interested in renting year round, either furnished or unfurnished, there are 79 homes or apartments available. The median price is $5,200 per month and the average price is $6,394 per month.
These year-round rental opportunities have been on the market an average of 67 days.

There are 28 short-term rental opportunities that are available, and they have been on the market an average of 50 days. Their average price is $6,929, and the median price is $5,700.
Please note that seasonal rental prices are sometimes listed as an aggregate price for the season, or they can be listed as per the monthly rental cost.

Activity in the UK housing market held relatively firm during August despite the distraction of the Olympic fortnight, according to the latest housing market survey published today (11 September) by the Royal Institution of Chartered Surveyors.

But surveyors are not overly optimistic about the rest of the year with 13% expecting further drops in house prices. And just 12% more expect sales to rise.

In the three months to August, chartered surveyors sold on average 7.5% of the homes on their books per month. Although historically low, the proportion of sales to stock has remained relatively consistent throughout 2012.

RICS says that in spite of this, perhaps unsurprisingly, with the Olympics having taken centre stage during August, the amount of potential buyers looking to view property saw a slight dip. A net balance of nine percent more surveyors reported falls in demand, down from -4% in July.

Alongside this, the number of new instructions was effectively unchanged on the July figure. With the amount of fresh supply coming onto the market having remained relatively stable so far this year, surveyors report that sales are progressing where vendors are realistic with their asking prices.

Elsewhere, prices continued to edge lower in August, albeit at a slower pace than in previous months. A net balance of 19% more respondents reported price falls rather than rises, from -23% in July.

Regionally, London was once again the only part of the country to report a positive reading for prices, while surveyors in Northern Ireland , the West Midlands and Yorkshire and Humberside reported the weakest readings.

Looking ahead, chartered surveyors across the country predict transaction levels to pick up slightly as autumn approaches with 12% more respondents expecting sales to rise rather than fall over the coming three months. The same cannot be said for future prices however with a net balance of 13% expecting further drops.

‘Little changed in the housing market last month. Despite the Olympics taking centre stage throughout much of August, it didn’t have any real impact on the proportion of sales going through. Understandably, the amount of people out looking at property fell away slightly but, generally speaking, demand held up fairly well,’ said Ian Perry, RICS spokesperson.

When we say “real estate bubble,” we immediately think of the American bubble. We think of years through which housing prices rose and rose, only to suddenly collapse, leaving people impoverished. We think of the collapse of the financial system that financed the real estate bubble. We think of the huge segment of the public that believed housing prices could only go up, and of the banks and credit rating agencies which invented the financial tools that sowed such tremendous destruction in the global financial system.

And so, when we talk about whether there is a bubble in the Israeli property market, we automatically wionder whether housing prices will continue to rise or whether they will drop sharply; whether Israeli lenders will meet their payments or whether there will be a large wave of insolvency; and whether Israeli banks are prepared for unemployment, recession and a wave of American-style mortgage defaults.

Herein lies the fundamental mistake made by economists, buyers, bankers and policy makers in the Israeli housing market. A bubble doesn’t necessarily involve swift price increases followed by a drop and huge losses to lenders.

There are other types of bubbles, too, the kinds that don’t burst one day on the stock exchange or in the market, but gradually spread and bring down a large group of people.

Such is the real estate bubble that has developed in Israel during the past three years. No one can say with certainty whether one day prices will collapse, whether banks will fail and investors will lose tens of billions. But regardless, the current prices of houses and rentals are causing tremendous damage to Israeli society as a whole.

Attempting to predict housing prices is as certain as attempting to predict the stock market. We have failed at it more than we’ve succeeded. Few people anticipated five years ago that we would enter an era in which, all over the world, including in Israel, there would be near-zero real interest rates over such a long period, and that this would combine with other factors to propel real estate prices But still, we must send a message to the decision makers and the general public regarding the long-term damage caused to Israeli society every year that tens of thousands of Israelis purchase homes with large mortgages that devour an increasing percentage of their disposable income

Edward J. DeMarco, the overseer of taxpayer-supported Fannie Mae (FNMA) and Freddie Mac, said the firms need to increase the fees they charge to guarantee mortgages in states where it’s costlier for them to deal with bad debt.

Enlarge image

Federal Housing Finance Agency Acting Director Edward DeMarco

Brendan Smialowski/Bloomberg

Acting director of the Federal Housing Finance Agency Edward DeMarco, right, has said Fannie Mae and Freddie Mac should adjust their guarantee fees to better reflect their costs and match how private firms would act.

Acting director of the Federal Housing Finance Agency Edward DeMarco, right, has said Fannie Mae and Freddie Mac should adjust their guarantee fees to better reflect their costs and match how private firms would act. Photographer: Brendan Smialowski/Bloomberg

Sponsored Links
	Double Discount promotion Get interest rate discounts on select new personal lo… wellsfargo.com/doubled…
	Homeowners – Refi Now Be… $200k for $774mo. $300k loan for $1,155mo. Calculate … www.LendingTree.com
	WisdomTree AUD & NZD Fix… AUNZ is an AUD & NZD Bond ETF w/ Currency Appreciatio… www.wisdomtree.com/AUNZ
Buy a link

That doesn’t bode well for New York, which is among states that extend added protections for borrowers in danger of losing their homes.

It takes an average of 56.3 months, or almost five years, from a missed payment to the liquidation of a mortgaged property in New York, according to JPMorgan Chase & Co. That’s about three years longer than in Arizona, where judicial reviews aren’t needed for foreclosures and court-supervised workout negotiations aren’t mandated. The extra costs could be offset with upfront charges of 0.1 percentage point to 0.2 percentage point of loan amounts, the bank’s analysts estimate.

“From a private investor standpoint, it makes complete sense to us” to vary fees by region, said Bryan Whalen, co-head of mortgage bonds at Los Angeles-based TCW Group Inc., which oversees about $130 billion.

Florida, New Jersey and Vermont also could face increased loan rates once lenders start passing on the new fees being considered at Fannie Mae and Freddie Mac, which are meant to compensate for state and local policies that increase losses on defaulted loans. Court-supervised foreclosures add legal expenses, and longer timelines bring more property taxes, insurance and potential maintenance costs.

‘Major Shift’

The change would represent “a major shift” in Fannie Mae and Freddie Mac policy, “which for decades aimed to smooth out regional disparities in mortgage credit pricing and availability,” said Adam Levitin, a professor at the Georgetown University Law Center.

DeMarco, the acting director of the Federal Housing Finance Agency, is already facing criticism from lawmakers and homeowner advocates for refusing to allow Fannie Mae and Freddie Mac to reduce principal balances for troubled borrowers. The new policy invites further scrutiny as he tries to reform the companies.

“It is a step back to the pre-Depression market and appears to be taken to bully local government units into standing back and letting the foreclosures roll,” said Levitin. “If the FHFA weren’t so ideologically determined to prevent principal reduction, local governments wouldn’t have to take aggressive anti-foreclosure measures.”

Corinne Russell, a spokeswoman for the FHFA, declined to comment.

Higher Prices

While mortgage rates are near record lows as the Federal Reserve pushes down borrowing costs to stimulate the economy, the added fees would come as the housing recovery remains uneven. Purchase applications declined 5.3 percent in August, providing “further evidence that mortgage-dependent buyers are barely contributing to the recovery in housing market activity,” Paul Diggle, property economist for Capital Economics in London, wrote in a Sept. 5 note to clients. In the $5 trillion market for government-backed mortgage bonds, securities with loans from affected areas may command higher prices as the odds of borrowers’ refinancing falls, according to analysts at JPMorgan and Credit Suisse Group AG.

DeMarco has said Fannie Mae and Freddie Mac should adjust their guarantee fees to better reflect their costs and match how private firms would act. The goal is to reduce their role in a market where they back roughly two-thirds of new loans and improve their finances.

The housing market is better off today than it was four years ago.

So argues Jed Kolko, Trulia’s chief economist, who surveys the housing landscape across the country and comes away encouraged after looking at how bad things were back in early 2009, when President Obama first took office.

By the time Obama gave his inauguration speech, housing prices across the country had collapsed, falling nearly 30 percent.

Over the next three years, home prices dropped another 7.5 percent, before reversing that trend over the past nine months. As of June, prices had rebounded 3.6 percent, Kolko notes.

By the time we all head to the polls this November, home prices should be just 2.2 percent below where they were when Obama first took office.

“When Obama took office, prices were in free fall, and now they have stabilized,” he writes.

Funny then the president isn’t out there pounding the podium about his success in turning around the depressed housing market. In fact, housing barely gets a mention these days from either Obama or his Republican challenger, Mitt Romney.

Well there are good reasons for the president’s silence on the issue.

His initial, somewhat ambiguous praise aside, Kolko makes clear that Obama’s record on housing has been a mixed one at best.

However, it’s mostly not to the President’s credit that the market is better off today. Policy did little to affect the trends in prices and construction, and the Administration’s most visible housing push – refinancing – was more about economic stimulus than about keeping people in their homes. Furthermore, the foreclosure inventory remains high in judicial states, mortgage credit remains very tight, and big future housing policy questions are unresolved. And “normal” remains many years away.

In fact, Kolko’s letting Obama off too easy – his administration’s bungling, halfhearted attempts to staunch the foreclosure crisis – HAMP for one – all too often has simply delayed the inevitable, leaving the threat of millions of zombie homes hanging over the market.

In fact, Obama’s scatter shot approach to the housing crisis may go down as his biggest failure, adding a huge drag to an already burdened economy struggling to get back on its feet.

The federal government’s reluctance to take the lead has led a mushrooming of grand-standing state initiatives that in some cases have turned the foreclosure process into a years-long slog.

Tellingly, Romney hasn’t offered up much of anything of what he would do with housing should he make it to the White House.

Not exactly a confidence builder either.