YOU'D never guess looking at Luo that she makes a lot of money buying and selling residential properties.
While China tries to clamp down on lending to thwart property speculators and rein in a real estate bubble, Luo slips through the net because she doesn't borrow from banks to buy homes.
Luo declined to give her full name because she doesn't want to call attention to activities frowned on by the government.
The 30-something speculator, a small fish in the big pond of speculators, got into the market back in 2002, before the property boom, using funds pooled with friends. She runs her operation as a small private real estate investment trust, financing purchase of new properties with the proceeds from sales.
Luo and others like her in the business of "property churn" are a thorn in the side of government efforts to control a runaway real estate prices by brakes on lending. Some data suggest that mortgages accounted for less than one-third of home sales in Shanghai, indicating the size of the market outside the banking realm.
In April, the State Council, China's Cabinet, raised the minimum down payment on second home mortgages to 50 percent from 40 percent and added 10 percentage points to the interest rate for such loans.
The government also strongly recommended banks halt all lending to people seeking to buy a third home in places where real estate prices have risen too rapidly or too high. The central government didn't give any data to define what is too rapid or what is too high. But cities like Shanghai, where average new home prices soared 16 percent to 16,188 yuan (US$2,370) last year, is widely deemed to fall into the category.
New home sales more than doubled in the city last year.
Another friend of mine who works for a major state-owned bank as a credit officer told me that her team boss bought another apartment just before local implementation rules on the new state policy were unveiled.
Surging prices
"Our boss said home prices will still rise in the long run and buying a home when loans are easy to get is still playing a trump card," said the woman, who declined to give her name for fear of reprisals.
New home prices in China last year surged 25 percent from 2008, far exceeding growth of 9.8 percent in per capita disposable income of urban mainland residents, according to the Chinese Academy of Social Sciences. Prices showed no signs of abating in the first quarter.
The government has pulled out bigger guns as prices keep rising, hoping that buyers will pause and adopt the attitude that prices might drop. Indeed, home sales transactions have declined, forcing real estate sellers to increase their sales hype but not drop their prices.
Even if prices have shown some correction, the drop is not as much as expected by the general public.
New home prices jumped to a record in Shanghai in April, with the average square meter cost rising to an average of 22,926 yuan at the top end of the market.
The average new home price in Shanghai fell to below 20,000 yuan per square meter in the week ending May 23, said Shanghai Uwin Real Estate Information Services Co. But prices are still relatively high and beyond the reach of the general public.
Luo has been in the market long enough to realize that the high-flying prices were unsustainable, even before the government imposed its latest curbs.
"The home market always works this way," she told me. "A good year followed by a bad one. It's a cycle."
Recurring cycles
That's why she sold a small apartment, 46.6 square meters, in Changning District, in late March. She sold it at 1.16 million yuan, taking a 78 percent profit on a 10-month holding.
The cycle theory indeed seems to be the trend. Prices skyrocket, the government intervenes with curbs, prices drop, and then buyers rush in, starting the cycle anew.