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Future direction of China's real estate market remains unclear
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14:27, July 01, 2009

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Prime land in Beijing's CBD area auctioned for record 4.06 bln yuan

A plot of land at No. 15, Guangqu Road in Beijing was auctioned at an exorbitant price, setting a new record for publicly sold Beijing land. Does this mean that the real estate market is heating up again?

The frequent appearance of "prime land" indicates that funding pressure in the real estate market is gradually relieved.

To cope with the impact of the international financial crisis, the government has implemented a number of policies to increase investment and stimulate the economy. New loans may hit 6 trillion yuan in the first half of the year. In the current environment of relaxed currency and credit, credit will inevitably flow into the housing market, and then transfer to the real estate market.

However, the abundant capital has not aided the recovery of the entire real estate industry.

Enterprises which have recently secured "prime land" at auction are either the richest in the real estate industry or those with a background of central state-owned enterprises (SOEs). They dare to play the land market even before the prospects are known. Aside from demonstrating their confidence, this more importantly shows their solid financial strength. This handful of enterprises may not accurately represent reality as many developers are still faced with tight cash flow problems.

The plots of "prime land" in Beijing are all located in key areas. Real estate projects in these areas are mostly high-end and have a stronger resistance to the downturn trend than typical commercial buildings. With the housing market rebounding, these plots of land with high investment values have naturally become key areas for developers' future strategic arrangements.

Meanwhile, local governments are continuing to increase the supply of land for residential construction at relatively low prices. Data from the dynamic monitoring system of China's urban land values show that most urban land values in the first half of the year decreased or remained essentially unchanged year-on-year. Some plots of land were auctioned at rock-bottom prices or even failed to sell.

At present the real estate market in many first-tier cities has two extreme situations. On one side, land value and housing prices in core areas are rapidly increasing and properties are selling like hot cakes. On the other side, construction projects in the cities' peripheral areas remain low-priced but are hard to sell and land is mostly bought and sold at rock bottom prices. Under these circumstances, many home buyers face fewer and fewer choices with some choosing to wait and see what the future holds. Typical commercial buildings have a fluctuating turnover.

Although the frequent appearance of "prime land" reflects developers' rising confidence and abundant capital, it is too early to conclude that the real estate market has completed its adjustment. Whether the market can maintain its strong momentum in the second half of the year remains unclear.

By People's Daily Online

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