China Real Estate Market is Drunk and Tired, But Getting Better Say Developers

Speaking on the sidelines of an industry conference in Beijing this weekend leaders of real estate developers Vantone, Greenland Group and China Resources Holdings took the first step toward a recovery by admitting that the industry has a problem.

Feng Lun, Chairman of Vantone Group compared real estate developers to alcoholics drunk on high margins, according to an interview in Xinhua.

“The developers pursue exorbitant profits just like the drinkers get thirsty for the happiness and excitement of drinking. If they forget how much they can safely drink, it is easy for them to get drunk,” Feng said.

However, the Beijing-based property magnate saw hope for a recovery, adding, “It is not good to drink too much at one time. What is more important is to safely maintain healthy habits. It seems most Chinese developers are starting to think this way.”

Gathering at the China Development Forum

Feng and other market leaders had gathered at the China Development Forum, a major economic event in Beijing which is being attended by Vice Premier Zhang Gaoli, International Monetary Fund Managing Director Christine Lagarde, World Bank Managing Director Sri Mulyani, and other dignitaries.

At the forum, Zhang Yuliang, Chairman of Shanghai’s Greenland Group expressed concern for the nation’s housing market, and recommended that it “have a rest”.

Zhang, whose state-run enterprise has been among China’s most aggressive acquirers of overseas real estate assets compared property developers to mountain climbers.

“After climbing to a high point, he feels exhausted, has to slow down and need to have two deep breath, which is good for his health.”

Industry Leaders Remain Cheerful

Despite slackening home prices, and a slowdown in transactions that have put pressure on many firms and compressed margins, the leaders of some of China’s biggest developers still managed to sound upbeat.

At least in the case of the country’s biggest cities including Beijing, Shanghai and Guangzhou, Song Lin, Chairman of state-run China Resources Holdings, said that he expects housing prices to continue to rise, if at a slower pace than previously.

However, Song indicated that housing prices in smaller communities may be in need of some “adjustment.”

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.

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.