Real Estate report says prices in first-tier cities could be cut by 20% in the short term

Lower house prices are inevitable new financing tools to reduce bank risk the Spanish foreign Bank (BBVA) Economic Research Institute and CITIC Bank Planning and Development department recently released the first China real Estate Watch report.　　The report said that despite the huge long-term investment potential in the Chinese residential property market, prices in the first-tier cities could be cut by about 20% in the short term because of the current sharp economic downturn and the varying degrees of overvaluation in major urban housing prices.　　Because of the real estate project financing and individual mortgage, the Bank loan fund has assumed the irreplaceable role at present, therefore also undertakes the higher risk correspondingly.　　In order to mitigate the negative impact of the adjustment of residential property market, the report puts forward a series of suggestions, including adopting new financing instruments, such as asset-backed bonds and real estate investment trusts, to reduce the cost of real estate financing and the risk of commercial banks, and to share risks with investors. In fact, Citic Group and its companies have long been deeply involved in domestic real estate market in October 2008, Citic Group through Citic Trust and Citic Real estate led the establishment of the current domestic largest real estate trust fund-about 7 billion yuan "Citic Shengjing Star-Yiu Real Estate Fund Collection Trust program." In June, Citic Trust announced the establishment of the Citic-Cade Technology Park investment Fund in Beijing.　　This is the first real estate equity investment fund to be designed and managed according to the International Private fund model.　　BBVA is a strategic investor in Citic Bank, with a 10.7% per cent stake. 3-4 years of digestion of existing housing stock report points out that, based on China's major cities supply and demand assessment of housing prices, Beijing, Shanghai and Shenzhen housing prices are now overvalued than the equilibrium price of 16%, 18% and 20% respectively. Some two-tier cities, such as Chongqing and Tianjin, even have a 20% to 25% overvalued price.　　Compared with balanced pricing, the current housing prices in Guangzhou are more reasonable.　　The report shows that in China over the past decade, the relationship between business cycles and property prices has been very close, and property price movements caused by economic activity typically lag one to two quarters. As a result of the rapid economic decline, high-end residential real estate oversupply and many other factors coexist, the short-term adjustment of house prices is inevitable. "Based on the area of completion and different sales assumptions, we find that it will take 3-4 years to digest the existing housing stock."　　"The report notes. However, the report also said that the possibility of a substantial decline in China's real estate market is very high. "Given the higher savings rate, good growth prospects, low interest rates and aggressive government policies, there is still much room for future growth in urban real estate demand in China." As long as prices are flexible enough to adjust to economic conditions, demand arises.　　"The report notes that the strong rebound in domestic housing volume after recent declines in housing prices fully reflects this. In the past few years, real estate-related activities have accounted for about 20% of the total income of local governments. In some places, the government is selling land and the real estate industryThe dependencies of related activities are much higher than this number.　　New financing instruments to reduce the risk of banks the reality is that, whether the real estate market is booming or bubbles, bank credit funds play an irreplaceable role. In the view of BBVA, most of China's real estate projects are financed by self-financing and bank loans, and there is a large amount of funds not indicated, possibly from public listings of property companies and private capital investment.　　Foreign investment, which accounted for 5% of the financing in 1998, has fallen to less than 2% per cent. Personal Mortgage, 2007 National Housing Provident Fund Management Center loans amounted to 856.6 billion yuan, and bank mortgage loans for 2.9625 trillion yuan.　　That is to say, the Housing Provident Fund loan amount is only the commercial mortgage loan's less than One-third. In terms of amount, commercial loans are much larger than Housing Provident Fund loans, which play a greater role in the purchase of housing. and mortgage loans to the end of 2008 still accounted for a small proportion of bank loans, about 10%.　　And most mortgages are not securitised. BBVA believes that new mortgage financing instruments, such as asset-backed bonds, should continue to be used to reduce real estate financing costs and commercial banks ' concentration risks.　　In addition, new financing instruments (such as real estate investment trusts) are also an effective way for real estate developers to widen their funding channels, reduce their leverage and share risks with the vast majority of investors.　　Although real estate developers and investors eagerly look forward to the emergence of real estate investment trusts in China, some key regulatory hurdles, such as double taxation and property registration, must be resolved before they can continue to develop. "In fact, double taxation is a big problem that may make investors reluctant to intervene in real estate investment trusts." Commercial housing should be the main object of real estate investment trusts, but residential property is also the key factor to the success of China's real estate investment trust. "The current economic environment should help real estate investment trusts come out in China, but critical barriers must be overcome," the report said.