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September 2, 2014

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Home » Business » Real Estate Special

Wobbly trend: too many homes, too few buyers

By Cherry Cao | September 2, 2014, Tuesday | Print Edition

HOUSING prices in China are under growing pressure from a combination of excess unsold stock and too few buyers. A recent relaxation of property-purchase restrictions in some cities seems to have done little to strengthen a flat market, according to recent government data.

In July, home prices in 64 Chinese cities registered month-on-month declines, according to the National Bureau of Statistics, which tracks real estate in 70 cities around the country. That compared to 55 cities showing declines in June and 35 in May.

The average price of a new home, meanwhile, fell 0.9 percent in July after a 0.5 percent decrease in June and a 0.2 percent drop in May, when the first monthly retreat since June 2012 began.

“July brought more evidence that the down trend in housing prices across the nation will not end anytime soon,” said Frank Chen, executive director, head of CBRE Research, China.

“Not only was it the third consecutive month that the average new home price in 70 cities declined, but it was also the third straight month of increases in both the magnitude of that drop and in the number of cities affected,” Chen said.

Looking at the figures on an annual basis doesn’t improve the picture.

Home prices in 65 of the 70 cities rose from a year ago, compared with 69 in June. The national housing price rose 2.6 percent, slowing from a 4.3 percent annual gain in June, the bureau said.

More than 30 Chinese cities, alarmed by their flagging real estate sectors, have begun to roll back restrictions initially imposed to rein in speculators and soaring prices that put home-buying out of the reach of many ordinary Chinese people.

The efforts don’t seem to have affected consumer sentiment yet. As a result, many property developers are strapped for cash flows to maintain operations or purchase land for future growth.

Cities that have eased property curbs, a trend that started in April, have resorted to a number of measures, including homebuyer subsidies, reductions in down-payment requirements and removal of restrictions on how many homes a family may purchase. More than 80 percent of the 46 Chinese cities that imposed a home purchase restrictions are now in easing mode.

The central government’s campaign to let some air out of the nation’s property bubble began several years ago, evolving into some of the toughest austerity policies ever implemented in the real estate sector.

“The recent relaxation of home purchase restrictions around the country won’t change the overall southward trend in the domestic housing market, which is currently experiencing a deep correction,” Alan Chiang, head of residential property at DTZ China said in an earlier note. “The market is expected to remain subdued amid a prevalent ‘wait-and-see’ attitude among potential homebuyers, even in the face of high inventories.”

Since 2011, new home starts in China have outnumbered sales by about 1.2 billion square meters, DTZ said, making oversupply an extremely serious problem, particularly in smaller cities.

Even in gateway cities like Shanghai, where industry analysts believe there is sustainable demand from both first-time buyers and home upgraders, the supply-demand situation at the moment is not a rosy one for developers.

For several months, the city’s stock of new homes, excluding government-subsidized affordable housing, has been well above 11 million square meters, according to the city’s official real estate website. In July, for instance, when some 700,000 square meters of new housing were sold across the city, new home supply stood at 940,000 square meters. It was the third consecutive month for such an imbalance, according to www.fang.com, the country’s largest real estate website.

The first data from August shows no change in trend of the city market.

Despite a cooler-than-usual summer, which generally spurs home-buying activity, new home sales in the first 24 days of the month totaled 442,600 square meters, and seven-day volumes remained below the 150,000-square-meter mark for three straight weeks, according to Shanghai Deovolente Realty Co.

“The loosening of home purchase restrictions in most of the second- and third-tier cities didn’t have any positive impact on home prices, either in the new or existing markets,” said Lu Qilin, a Deovolente researcher. “Nationwide, housing prices will probably keep going south at a faster rate as long as inventories continue to climb and buyers remain cautious.”

In the Inner Mongolian capital of Hohhot, the first city to officially announce an easing of curbs on home buying, new home prices in July fell 1 percent month-on-month, compared to a 0.2 percent drop in June. Existing home prices retreated 0.7 percent, accelerating from June’s 0.4 percent decrease, according to the bureau’s data.

“With an increasing number of prospective home buyers adopting a wait-and-see attitude, the policy adjustments have yet to achieve their goal of propping up market prices,” Chen said. “It seems that goal is becoming more elusive, as capital cost escalation, tight credit and excess supply force most developers to adopt price-cutting strategies to reduce stocks and hasten turnover. We expect pressure on home prices to continue.”

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