Property sales in China have fallen 16.7 percent this year compared to the first two months of 2014, dashing developer hopes for a quick recovery to the nation’s housing slump.
The slide in home sales came despite a series of moves in recent months to increase China’s credit supply and lower the cost of home mortgages, and can be seen to increase the likelihood of China’s government taking further steps to prop up the real estate sector.
The downturn in consumer sentiment has clearly registered with the nation’s property developers, who cut back their land purchases by 31.7 percent in January and February, thus putting more pressure onto local governments who depend heavily on land sales for revenues.
Home Sales Falling Despite Rate Cuts
According to figures released this week by China’s National Bureau of Statistics, sales of new homes by the nation’s property developers fell to RMB 498 billion during the first two months of 2015. By area, the quantity of new housing sold fell by 17.8 percent compared to last the first two months of last year to 77 million square metres.
| Real Estate Sales in Jan-Feb 2015 | Value (RMB Bil) | % Growth Rate Y-o-Y | Area (Mil Sqm) | % Growth Rate Y-o-Y |
|---|---|---|---|---|
| Total buildings sold | 597.2 | -15.8% | 87.6 | -16.3% |
| Housing space sold | 498.3 | -16.7% | 77.1 | -17.8% |
| Office space sold | 25.1 | -15.6% | 2.2 | -4.6% |
| Retail space sold | 62.2 | -4.0% | 5.9 | 3.2% |
The housing slump came despite the government having taken a number of measures in recent months to encourage home buyers to get back into the market, including injecting more liquidity into the banking system, cutting interest rates and revising lending rules.
On February 28th, China’s central bank cut interest rates for the second time in three months, as the country attempts to soften the blow of slowing economic growth and encourage more spending by businesses and consumers.
Developers Cut Back on Land Buys
The most striking information in this latest batch of data from the Bureau of Statistics is the rapid reduction in land purchases by developers.
Although land sales do not normally follow a smooth monthly flow, the 31.7 percent drop in land sales to homebuilders during January and February could mark a major shift in developer confidence.
New investment in the nation’s property sector also continued to grow, however, climbing more than nine percent from the same period last year. However, this commitment of financing may be largely related to the completion of existing projects already in the pipeline, as new housing starts fell by nearly 20 percent.
And developers may have good reason for caution, considering the overhang of unsold housing still on the market. According to the bureau’s statistics, China now has more than 421 million square metres of housing inventory, up by 23.4 percent compared to the same period one year ago.
At the same time, the total amount of housing under construction continued to grow, climbing 4.4 percent to nearly 4 billion square metres.
Developers Get More Cautious and Hope for More Government Help
China’s real estate developers have made their solution to the current housing slump plain enough through a 19.8 percent reduction in new housing starts. In the meantime, the developers will need to work to sell off their excess inventory and keep their creditors calm.
Many analysts believe that China’s government will step in still further to help out in the coming months, with further reductions in benchmark lending rates and bank reserve ratios expected.
Leave a Reply