China Ceramics Co. Ltd. (CCLTF)

[redman_2014]

Article about lack of supply.

Demand for new properties outstrips supply at home fair
By Meng Jing (China Daily)
Updated: 2010-04-13 09:37

Local sales of apartments at the Beijing Spring Real Estate Trade Fair are down by 30 percent compared with last year's event due to low supply, property agencies said.

Statistics from the organizing committee of the spring fair, which is one of the key indicators of China's real estate market, showed that 1,244 apartments in Beijing were sold during the four-day event that closed on Sunday.

In 2009, that figure was 1,812. Property agencies in Beijing blamed the decrease in sales on the lack of available apartments in the city.

Li Wenjie, Centaline Property, North China general manager, said the average house price in Beijing was 21,164 yuan per sq m at this year's spring fair compared with 11,566 yuan per sq m last year.

"Though fewer apartments were sold during this Spring Fair, the average house price is getting higher and higher, because the supply of Beijing apartments is decreasing," Li told METRO on Monday.

"People cannot find enough apartments to buy so their choice is shrinking. It is not because there is a reduced demand for apartments," he said.

Li said as more high-priced residential land in the city becomes available, the future of house prices will become clearer.

"We think the price will continue to climb this year, because all the apartments built in 2009 have been sold. Now buyers are rushing to the secondhand market," he said, pointing out that 8,745 secondhand apartments were sold during the first 10 days of April, a jump of 32 percent comparing with same time last year.

Homelink Real Estate, a major property agency in Beijing, echoed Li's statements.

"Fewer apartments in Beijing led to the drop in sales at this fair," said Zhang Yue, a market analyst from Homelink Real Estate, adding that less than 60 property projects, out of an overall 150 shown at the fair, were from Beijing.

Homelink Real Estate sold 413 secondhand apartments during the event, which was a new record for the company. "The average price of the secondhand apartments in Beijing that we sold at this fair exceeded 20,000 yuan per sq m," Zhang said. She believed the price would continue to climb due to the low supply and the increasing demand for secondhand properties

People's confidence in the real estate market is another reason why prices are escalating.

According to a questionnaire conducted by Homelink Real Estate during the spring fair, 70 percent out of the 200 respondents believed the price of Beijing real estate would keep climbing and the jump will be from 30 percent to 50 percent this year.

http://www.chinadaily.com.cn/metro/2010-04/13/content_9721223.htm

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A 100% increase in the price/sq M in one year is huge, but a lack of supply is a legitimate reason for increased pricing. Think of a multi-million dollar oceanfront property compared to a average small-town mid-western property. There will be a difference in price of 20x to 30x or more between the two, and scarcity of supply is a major reason. Prices cannot continue to rise as quick as they are, but it is understandable why the prices in Beijing and Shanghai are high(In 20-30 years Beijing will probably be the capital of the biggest country in the world both in terms of GDP and population.) That makes for a lot of millionaires, tens of millions to be exact, and a lot of people who can afford a hefty price tag for an apartment.

It sounds like a pricing bubble definitely exists due to the speed of increase alone, but many individuals buying apartments now may just be making a poor investment instead of something that will crush them financially. The prices may decrease in the short-term due to government intervention but over the long-term they will go up due to demand.

-Adam