Transcripts

China's Property Prices Are Slowing But Home Improvement Sales Are Building

PAUL KANGAS: Meanwhile, in China, the property market has been booming for the past five years, but prices have recently plunged in cities like Shanghai and are now, at best, slowing down elsewhere. One related industry that is still booming is home improvement companies, which are expanding their operations deep into the country to serve the growing ranks of homeowners with more discerning tastes. Nick Mackie reports.

NICK MACKIE, NIGHTLY BUSINESS REPORT CORRESPONDENT: This was 24-year- old Zhang Shiyun a year ago. Armed with savings and her boyfriend`s annual bonus, she parted with $10,000, the obligatory 30 percent deposit, to buy an apartment that should look like this when it`s finally built. She`s been paying the monthly installments of $130 ever since, effectively co- financing the developer up-front from her 20-year mortgage. Now, with possession, what she gets isn`t much like the artists` model. That`s because, in China, buyers buy the promise of a home. They only get a shell that they can`t yet actually live in. An 860-square-foot apartment like this will cost another $5,000 to wire, plumb and decorate. But since she bought her apartment in this complex, changes in the property market have been unexpected. Prices in the more affluent coastal cities like Shanghai have nosedived, while even here, further inland, where homes are typically 50 percent cheaper, buyers are no longer prepared to borrow against rising prices that may have doubled between 2000 and 2005.

Since China allowed home loans in the 1990s, property has been considered a guaranteed good investment. But with property bubbles threatening urban stability, the government cooled speculation six months ago by limiting credit and strictly controlling land sales. Now the Chinese are learning a key lesson about the market.

TRANSLATION OF: ZHANG SHIYUN, FIRST TIME HOME BUYER: As far as investment is concerned, it`s not good. As a result of the government`s measures, the rise in value is not much and so any return is low.

MACKIE: But retail building supplies companies like Home Depot and Britain`s B&Q appear unfazed by any market volatility. Countrywide, the finishings sector is estimated to grow by over 50 percent to $60 billion by 2008 as interior design grows in importance. And even in this region, once considered an economic backwater, the foreign players anticipate a robust return as consumers turn more to brands which they associate with good design and quality.

TRANSLATION OF: STEPHEN XIAO, STORE MANAGER, B&Q CHONGQING: Over the next two to three years, growth in the western region will be obvious. The second Chongquing B&Q and others will open hand in hand with this development. B&Q strategy considers the western region as China`s key growth engine.

MACKIE: Zhang Shiyun and her boyfriend want quality, but they`re somewhat daunted by the cost of making their new home habitable. However, they were at least able to afford to buy into the new China comfortably, as a future round of rising prices in the marketplace could stretch home buying budgets to the limit. Nick Mackie, NIGHTLY BUSINESS REPORT, Chongqing.