Construction steel accounts for over 40 percent of all manufactured steel products, and most
construction steel is used in building real estate for private and business purposes. Thus, the importance of the real estate market as regards the steel market must be clear to all.
China's real estate market has experienced rapid development in recent years. Accompanied by the sharp rise in new real estate being built, prices have increased continually and are at their highest level to date. During the third quarter of 2006, the average sales price of newly-built housing in 70 major Chinese cities saw a rise of 6.7 percent year on year. Of the cities in question, Shenzhen and Beijing were the leaders, recording 12.3 percent and 10.9 percent jumps respectively. At the same time, however, Shanghai's average price dropped by 2.3 percent.
Although in most of
China's cities the price of real estate is still high and though property developer are still moving forward with enthusiasm towards new building projects, the real estate market is slowly showing signs of an incipient cooling down. Shanghai is the best reference example we can take. When in 2003 the Chinese real estate market started to boom, Shanghai was the leader of the nationwide trend. As the most developed area in
China, Shanghai's trends always have a certain influence on the other Chinese regions and and indicate the direction they are soon likely to follow . The deeper causes of the cooling down tendency in
China's real estate market be summarized as below:
Real estate price bubbles starts to burst
A recurring discussion point in
China since 2004 has centered around the possible existence of real estate bubbles in
China, which would have their origin in the inability of ordinary people to accept sharply-increasing real estate prices. In the past, the property developers always said that they didn't make huge financial gain because the initial cost of buying land was also very high. However, such claims have now been proven to be lies. According to latest reliable indicators, the profit rates on real estate reach nearly 40 percent while the developers report only 10–20 percent to the tax department. As a matter of fact, while their gains were higher than they reported, they used all possible means to avoid paying taxes. With the truth behind the elevated real estate prices coming out, people's purchasing conducts are becoming more rational. More prospective buyer are tending to hold onto their money and keep a hopeful watch out for market downturns.
Macro-management policies start to show their effects
The implementation of the state's macro-management policies on restriction of over-development and of over-evaluation of real estate is gradually beginning to show positive effects. More property developer are short capital or even out of capital altogether. Shanghai's blooming auction market illuminates this point. Apart from second-hand housing, many new appartments, uncompleted buildings and even newly-built buildings are being brought here for sale. Furthermore, some property developers are even mortgaging their rights to develop land to banks and other institutions in order to raise capital. The government is also making efforts to restrict land costs by offering land to bidders who have not put forward the highest price. The most recent Beijing land auctions have demonstrated this point. All these factors are pushing property developers to sell their products at a lower price level and as quickly as possible. The effects have been positive as regards slashing the developers' handsome profits and cooling down the market.
Real estate corruption and illegality under investigation
People's anger over shady dealings in real estate erupted with the revelations in late 2006 concerning the Shanghai social security corruption case. Billions were illegally moved by local government officials in Shanghai in order to support developers' real estate projects. As a result, many building projects – old and new - all over the country are currently under investigation. In addition, other inquiries into illegal real estate deals have been commenced in Beijing and other cities. It is thought that these investigations into the real estate market will inevitably result in a cleaner and healthier market.