China Housing Market Slows For Second Straight Month

Growth in average new home prices in China’s 70 biggest cities slowed to 8.7 percent in February compared to the same period last year, down from 9.6 percent growth the previous month according to analysis of official figures by Mingtiandi.

Perhaps more importantly for the nation’s hard-pressed real estate developers, the total sales volume dropped last month nationwide, meaning less revenues for companies struggling to finance their operations.

Compared on a month to month basis, data provided by the National Bureau of Statistics indicate that the market climbed by only 0.3 percent in the cities from which data was available, which also showed a drop-off from the increase from December to January of 0.4 percent.

The market slowdown follows new government measures introduced late last year to tighten credit for individuals and developers over fears of a housing bubble.

While prices still increased in 57 of the 70 cities for which China’s government provides data, that number is down from 62 in January.

Of the country’s four first-tier cities, all reported less than full digit monthly growth last month with Beijing and Shenzhen both increasing by 0.2 percent, Shanghai up by 0.4 percent and Guangzhou up 0.5 percent. These megacities had led the rapid growth last year which helped precipitate the current credit clampdown.

Some analysts speculate that actual home price growth across China could be much lower than what is indicated in the government statistics which report figure only for the largest cities, while some of the more severe cases of oversupply are in third and fourth-tier cities not reported on by the Bureau of Statistics.

Slowing Prices and Freezing Sales

While a market cooldown could be good news for potential homebuyers, it is adding to pressure on developers who have often borrowed extensively to build new projects and now find themselves faced with lower than expected sale prices for new homes.

Recently released statistics indicate that while price growth has slowed, actual sales have moved into negative territory, both in terms of value and floor area. For the first two months of the year, the value of new homes sold was down more than five percent to RMB 598.5 billion, compared to sales a year ago of RMB 630.1 billion.

In terms of floor space, sales were down 1.23 percent, falling to 93.77 million square metres in 2014, compared to 94.94 million square metres for the same period in 2013. This reduction in sales volume is likely to constrict the cashflow of already strained developers, particularly in the case of smaller, privately owned companies who do not have access to bank loans or overseas capital markets.

Ningbo real estate company Zhejiang Xingrun failed earlier this week after borrowing RMB 3.5 billion, partly to make record setting land purchases, and later finding itself unable to achieve the sales necessary to repay creditors.