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Realty fund shortage may reach $136b by 2009: expert

By Tu Lei (chinadaily.com.cn)
Updated: 2008-09-19 17:59

The real estate fund shortage may reach 929 billion yuan ($135.86 billion) if the industry gets through the three to five years' adjustment period, the 21st Century Business Herald reported Friday, citing an industry report.

The 2008 Chinese real estate industry fund report was written by Zhong Wei, a professor at the Financial Research Center of Beijing Normal University.

The report attributes the transaction volumes' shrinkage to the fast growth of commercial housing and land prices after the second half of 2006, as along with a gloomy economy and inflation since the second half of 2007, developers' slow reactions towards the market, and an unbalanced cash flow.

Consumers' purchasing ability has fallen by more than 3000 billion yuan due to gloomy stock and housing markets, said the report. "The supply-demand gap will be spread more as macro economy worsens".

Figures from the National Bureau of Statistics show sales in July dropped by 26.8 percent, down 27.1 percent month-on-month, or the fastest drop so far in 2008.

The shrink in transaction volumes has created severe pressure from the demand-end, said the report, adding that housing prices will face a turning point.

Housing prices in Shenzhen showed sluggish signs from December 2007; the increasing momentum in Shanghai stopped since February of this year, and prices dropped from July. And the month-on-month increase in average housing prices in Beijing in June and July has stopped as well.

Wei Wei, a research group member, said the fund shortage will come after the supply-demand gap, as capital input and payout pressure has shown already.

Figures show domestic loans have shrunk dramatically since the second quarter of 2008, up 0.5 percent year on year, compared with an increase rate of 30 to 40 percent before.

Cash flow in 2007 was 106.4 billion yuan. Figures dropped to 34.94 billion yuan in the first quarter of this year, and fell by 25.48 billion yuan to 9.47 billion yuan in the second quarter of this year.

"It is predicted that the increase rate of housing funds in the third quarter may approach zero or less than zero," said Wei Wei.

Meanwhile, developers' payouts are huge compared with shabby fund incomes.

Figures provided by realty developers shows the increased rate of investment in the first and second quarters in 2008 has breached 30 percent, faster than the same period last year, and capital input in July has not showed signs of slowing.

Meanwhile, land purchasing fees, interests, and tax are important for developers' payouts.

By the end of June in 2008, land storage had reached 320 million sq m, and land purchasing fees had exceeded 210 billion yuan, compared with 400 billion yuan in 2007.

Developers' fund infrastructure shows 75 percent of capital was from liabilities, and the tax payout in 2007 was nearly 250 billion yuan.

In the first half of 2008, the industry fund gap was only 52.8 billion yuan, for the housing price still had room to increase.

Pan Shiyi, CEO of SOHO, said it will take time to regain housing market confidence after the central bank made an abrupt decision on Monday to reduce the benchmark loan interest rate and the reserve requirement ratio for commercial banks.

The benchmark interest rate for one-year lending was lowered by 0.27 percentage points from Tuesday - its first downward movement since October 2004 - and the rate for deposits remains unchanged. At the same time, the ratio deposit lenders are required to set aside will be cut by 1 percentage point from September 25.