The sales hall at the oasis housing development welcomes customers with multicolored streamers, water fountains and marble floors. Sales agents inform visitors that only a few units are available from the first two phases of the project and that 70 of the 130 or more buildings are almost completed. But just a few hundred feet behind the sales hall, some of the "almost completed" buildings look like neglected hulking shells, the concrete aging and exposed, the green scaffolding fabric tattered from neglect. Construction workers idled nearby. Prices have been slashed from $95 per square foot to $55. Industry insiders say that as few as 300 units have been sold out of the first 2,000 put up.
In parts of the world, this might sound like another sad-sack Florida or Costa del Sol condo development, yet this scene is in the northern Chinese industrial city of Shenyang. Over the last five years residential prices in China, in dollar terms, doubled on average to $50 per square foot, and the country added 20 billion square feet of home space. But this once seemingly indomitable real estate boom is going into reverse, if not into a bust.
The number of home sales has plummeted across the country, dropping by half in June from a year earlier in Shanghai, Shenzhen, Guangzhou, Chongqing and Chengdu, according to data compiled byJPMorgan. Conditions are worst in southern China, where undeveloped parcels are going unsold and home prices are expected to continue falling despite an already steep drop of 40% from last autumn in some neighborhoods. Now the market malaise appears to be spreading northward. If not for an Olympics boost, Beijing's market would be weak, too.
The zigzag, as is often the case in China, can be traced to the central leadership: credit tightening in response to inflation (now at 7%) and government efforts to cool down the real estate market after years of rampant speculation on hyped-up luxury property. "The government in Beijing clearly concluded last year that the market was overheated," says Arthur Kroeber, managing director in Beijing of Dragonomics, an economic research firm. "Certain markets that were particularly overheated have really been very seriously damaged."
China's central bank played a leading role in softening the property market last year by toughening requirements for non-first-home mortgages, punishing speculators and the builders who have profited from them. (First-home mortgages became easy to get this decade and have stayed that way, and until recently rising prices shielded borrowers from the unfamiliar nightmare of negative equity.) The government also has begun imposing penalties for holding land undeveloped, perversely spurring more building while telling the banks to slow things down. "They made it a lot tougher for developers of high-end properties to finance their deals," Kroeber says. "It's clearly the government intention I think to drive out of business the smaller, less well capitalized property developers."
The builder of that 2.3 million square meter Oasis project, Hengda Real Estate Group, also known as Evergrande, was on the verge of becoming well capitalized when the cooldown came. Hengda had to abort a $2.1 billion public offering on the Hong Kong market at the last minute earlier this year, a deal that could have vaulted its chairman, Xu Jiayin, high up on the FORBES China rich list.
Instead dark times arrived for the property sector (see table). Many publicly traded property companies have lost more than two-thirds of their market value since their fall 2007 peaks, initial share offerings have been put off, and those that indulged in fevered land-buying sprees now find themselves overextended and thirsting for cash.
In parts of the world, this might sound like another sad-sack Florida or Costa del Sol condo development, yet this scene is in the northern Chinese industrial city of Shenyang. Over the last five years residential prices in China, in dollar terms, doubled on average to $50 per square foot, and the country added 20 billion square feet of home space. But this once seemingly indomitable real estate boom is going into reverse, if not into a bust.
The number of home sales has plummeted across the country, dropping by half in June from a year earlier in Shanghai, Shenzhen, Guangzhou, Chongqing and Chengdu, according to data compiled byJPMorgan. Conditions are worst in southern China, where undeveloped parcels are going unsold and home prices are expected to continue falling despite an already steep drop of 40% from last autumn in some neighborhoods. Now the market malaise appears to be spreading northward. If not for an Olympics boost, Beijing's market would be weak, too.
The zigzag, as is often the case in China, can be traced to the central leadership: credit tightening in response to inflation (now at 7%) and government efforts to cool down the real estate market after years of rampant speculation on hyped-up luxury property. "The government in Beijing clearly concluded last year that the market was overheated," says Arthur Kroeber, managing director in Beijing of Dragonomics, an economic research firm. "Certain markets that were particularly overheated have really been very seriously damaged."
China's central bank played a leading role in softening the property market last year by toughening requirements for non-first-home mortgages, punishing speculators and the builders who have profited from them. (First-home mortgages became easy to get this decade and have stayed that way, and until recently rising prices shielded borrowers from the unfamiliar nightmare of negative equity.) The government also has begun imposing penalties for holding land undeveloped, perversely spurring more building while telling the banks to slow things down. "They made it a lot tougher for developers of high-end properties to finance their deals," Kroeber says. "It's clearly the government intention I think to drive out of business the smaller, less well capitalized property developers."
The builder of that 2.3 million square meter Oasis project, Hengda Real Estate Group, also known as Evergrande, was on the verge of becoming well capitalized when the cooldown came. Hengda had to abort a $2.1 billion public offering on the Hong Kong market at the last minute earlier this year, a deal that could have vaulted its chairman, Xu Jiayin, high up on the FORBES China rich list.
Instead dark times arrived for the property sector (see table). Many publicly traded property companies have lost more than two-thirds of their market value since their fall 2007 peaks, initial share offerings have been put off, and those that indulged in fevered land-buying sprees now find themselves overextended and thirsting for cash.
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