Mixed forecast for China's real estate in 2009

The China Real Estate Index Academy released a report on Dec 30 which forecasted three trends for the real estate market in 2009:

Turnover will rebound when prices are reasonable

The transaction volume in the real estate market will rebound in 2009 as prices are adjusted to more reasonable levels.

According to the report, many residents are willing to buy self-use houses but are blocked by high house prices. It is suggested that developers should adjust prices and enhance promotions, since real estate markets are very sensitive to price changes.

Furthermore, favorable polices also prop up the housing market. On Oct 22, 2008, the central bank announced that the down payment threshold would be lowered from 30 percent to 20 percent. It also allowed financial institutions to offer favorable policies to support those making their first home purchase for self use and those buying self-use housing for improving living conditions. In addition, the loan interest rate has been cut five times since September.

Looking ahead, the report said that second-home buyers will play an important role in the housing market of 2009, since more favorable policies can be expected to reduce the cost of transactions.

Investment will slow but financing moves can boom
Many industry flagships have confidence in the long-term development of the real estate market but they are not optimistic in the short run and will cut investment plans accordingly.

According to the National Bureau of Statistics, real estate investment growth slowed to 22.7 percent in the January-November period of 2008, down from 24.6 percent in the first 10 months.

Investment growth will slow down further in 2009 but can remain positive.
With policy props, the corporate bond market as well as corporate loans will boom in 2009, since their returns are higher than that of deposits and the risks are limited. The capital-intensive real estate industry should make good use of this opportunity to raise funds through issuing bonds.

However, some small and medium-sized enterprises will continue to find it difficult to raise funds from the equity market and financial institutions. Therefore, following the jungle law, the real estate industry will be further integrated in 2009.

Flexible policies to prop up market in 2009
The government will make more efforts to "rescue the market," as the property sector is one of the biggest drivers of China's domestic consumption, contributing one-tenth of the gross domestic product.

The measures imposed in 2009 will be more flexible and prudent, including reducing taxes and fees at the transaction stage, lowering loan interest rate and offering tax rebates for home buyers.

The government will try to stabilize the housing price and rescue the market if prices dive, including using fiscal revenue to buy low-cost houses.