Hits on China’s housing market hurt small firms

HONG KONG: The shots that Beijing aimed at deflating a soaring property market are inflicting collateral damage.

Curtain maker Pan Wei, for one, is beginning to panic as he watches his pile of order slips thins. Along with thousands of business owners, Pan is feeling the pain of a slump in property sales.

"Our business is bound to suffer as fewer people are buying homes," he says.

Sales are the worst they have been for Pan since he set up his business in Lowu, Shenzhen, a year ago when the property market was beginning to recover from the global financial crisis. Intending then to ride the property boom, he hired two more employees to help generate orders from either new homeowners or people trading up to bigger flats.

"We had to work overtime until nine at night, otherwise we would miss the delivery deadline," Pan recalls, remembering the good times. "Now, our orders on hand will be exhausted next month. If the poor sales persist, I will have no choice but to cut two jobs to save costs."

Pan charges between 2,000 and 4,000 yuan (RM978 and RM1,956) for curtains and cushion covers for a whole house.

Property transactions in Shenzhen and other major cities have fallen by as much as 80% since the central government introduced a string of increasingly tough measures to cool the red-hot property market.

In response to the sharp fall in both the primary and secondary markets, Hong Kong-listed Midland Realty is considering a 30% cut in staff numbers at its Shanghai office over the next two months.

Anson Li, the company's general manager in Shanghai, said some domestic agencies had started to scale down their operations.

"Buyers are still waiting on the sidelines as they expect prices will have to fall further," he said. Market figures bear him out.

Michael Choi Ngai-min, chairman of property agent Land Power International Holdings, said the number of Hong Kong buyers of mainland apartments had dropped 50%, adding growing uncertainty to the market.

"Now is a critical period as buyers will not make any purchases, fearing further cooling measures," he said.

But not all businesses have been equally hit.

Christopher Law, director of the Hong Kong-based architectural firm Oval Partnership, which has expanded into the mainland market, said much would depend on property sales over the next few months.

"At present, most projects are still being pushed through according to schedule and some developers are even buying land in government auctions," he said. "There is little impact on the firm."

To generate cash flow, Guangzhou-based Evergrande Real Estate Group fired the first salvo in the latest discount war on May 5 when it said it was slashing prices at 40% in 20 cities by 15%.

Other developers have followed suit and prices of flats in Shanghai, Beijing and Nanjing have been cut by as much as 19%.

Worried by the runaway property prices, the central government took a series of steps in April to tighten credit, including a requirement for higher initial down payments and more stringent loan conditions for buyers of second homes.

Among the measures, Beijing raised the initial down payment for the purchase of second homes from 40% to 50%; it set the interest rates on loans to these buyers at 1.1 times the People's Bank of China's benchmark interest rate of 5.31%; it banned mortgages on purchases of a third property; and it imposed residency requirements on buyers.

Xavier Wong, who heads research at property consultants Knight Frank, said real estate was an economic pillar on the mainland and that a prolonged market downturn would affect the overall economy.

The industry has brought compound benefits far beyond the jobs it created for engineers, architects and others in the building trade, he said.

"Homebuyers will bring business to shops making curtains, selling furniture, televisions and other electrical appliances. The real estate industry is the largest industry chain of employment," he said. – South China Morning Post