Thursday, July 30, 2009

Land King! 地王!

Property developers surrounded by journalists at the public auction
No. 3, the winnerPan Shiyi, Chairman of SOHOChina, gestures "Niu (牛)".

You don't have to be the 'King of Pop' to get the media coverage and become a super hot topic in China. To be a 'Land King' is enough to make it a hot topic and get continuous and intensive media exposure in this country. What is a 'Land King'? 'Land King' in Chinese refers to the real estate developer who pays the highest land transfer price ever in history to buy a piece of land in a certain geographic area (e.g. a district in Beijing, a city, a province, or China). So, a property developer could be a 'Land King of Haidian District' if it pays the record high price in Haidian District to buy a chunk of land. The developer could also be a 'Land King of Beijing' if the price paid is also the highest price ever in Beijing.

Housing price has been the most talked-about topic in China for years. The surging housing price is the real pain for people living in Beijing, Shanghai and almost everywhere in this country. You MUST have your own house! That's what people think here. The financial crisis brought down the housing prices to the delight of prospective buyers. Apparently, the financial crisis was so 'weak'. The housing price plunged for a short period and begins to soar again! Record high prices have been paid for pieces of land in Beijing, Shanghai and Hangzhou respectively this year. When 'Flour (land) becomes more expensive than bread (house)', the price of the bread (house) will naturally go up. On June 30th, Fangxing Property, a subsidiary of state-owned Sinochem, acquired a chunk of land on Beijing's Guangqu Road for 4.06 billion yuan (US$59.7 million), the highest land transfer price ever in the city's public auction. Fangxing Property is not a big name developer in Beijing. But the developer successfully outbid big players such as SOHOChina, Vanke, Poly and was crowned the 'Land King' in Beijing. This has been big news recently. Those who were selling their houses in the nearby area had either increased the asking price dramatically or withdrawn their properties from the market to wait for a better time to sell. Pan Shiyi, the Chairman of SOHOChina, says to media that the record land price will surely push up housing prices in the nearby area of that piece of land. Understandably, he wasn't happy that SOHOChina failed to win the bid. However, he pointed out that his company could not compete with the less known Fangxing Property, a state-owned enterprise that had benefited from the government's 4 trillion yuan stimulus package and obtained huge loans from Chinese banks. Also, the 'Land King' in Hangzhou 'coincidentally' turned out to be a company with SOE background. I assume we can see clearly where China's soaring bank lending goes! It goes to SOEs and the real estate market (and the stock market, too?). Isn't the government trying to curb speculation in property market? We don't want to see so many 'Land Kings', especially the 'Land Kings' with SOE background! If the housing price continues to rise crazily, a 'HOMELESS' generation of young Chinese will soon come up!

Can you afford to buy an apartment for CNY13,000-24,000/sq. m. with a monthly salary of CNY 3,000-10,000 (before tax) in Beijing?

P.S. The 2008 average monthly salary of staff in Beijing is CNY3,322 (US$488.5).


Valerie said...

Don't worry - the real estate market will tank b/c the prices are unsustainable. We were told that housing prices would continue to rise and so many people in the U.S. bought and the height of the market and now they are losing their homes to foreclosure.

Remember these wise words (can't remember if they were said by Warren Buffet or Sam Walton): When everyone is greedy, be afraid; when everyone is afraid, be greedy. Meaning when the market drops out and everyone is selling, that's the time to be greedy and buy, buy, buy. For the real estate market in China now, let me be greedy and push the prices up and wait for the fall. It will happen, just have to be patient.

Hang said...

Valerie, thanks for the comment and the wise words. I think they were said by Warren Buffet. Let's wait for the fall. But in China, you need to be super patient when it comes to housing prices. Some people have been waiting for the fall since 2004. The housing price keeps rising instead of falling. I'm not sure if there will be any reward for the patience.

Ramesh said...

This situation is the same in many countries Hang - house prices are insane. Its soared so much again in China that I think Valerie is right - it will fall again. Truly housing has become the biggest muillstone around everybody's necks - prices bear no relation at all to incomes and earnings of 99% of the population.

Hang said...

Ramesh, you're right. Perhaps, we need to be more patient. People's income has shrunk because of the financial crisis while the housing price continues to soar. I guess there will be a big fall sometime in the future.

Anonymous said...

The problem that Valerie and everyone else in China are all waiting for "the bottom to fall out". That means it is going to be a long time indeed!

Jess said...

Valerie is right, and I definitely sympathize with the normal urban citizens in Shanghai and Beijing.

I am from San Francisco where the passing of absurd policies has related to property has made the cost of buying a house so expensive the past 5-10 years that it has driven out a lot of people with average salaries to find houses outside the city. My family was lucky enough to buy a house before the housing market went crazy or else we would have had to do the same thing.

In turn San Francisco has become a commuter city, many people have jobs in San Francisco and leave as soon as they are done with work for the day, creating massive traffic problems among many others. The city is dead at night because so few people can afford to live there or stay late enough to enjoy the city before transportation shuts down. My city has become a ghost town, it has a lot of wonderful places to visit but too many Californians make too little money to really enjoy them.

Situations like this and China's among many other countries makes me wonder how long normal people have to suffer and complain until the housing market rights itself again.

Hang said...

Thanks Jess for the very informative comment. I am surprised to know that San Francisco is a 'commuter city' as described above. Great to know something about San Francisco through the topic of housing market.

Beijing is just like San Francisco. People with average salaries are moving and living outside the 5th/6th ring road. Some people have even moved to Sanhe city in Hebei province. Just imagine how painful it is to commute to work in Beijing while you live so far from where you work!

It seems Ramesh is quite right in saying that this situation is the same in many countries.

Normal people suffer a lot, especially so many things(e.g. marriage) hinge on 'having your own house' in China.