China’s new home sales rose by 30 percent in May, as government moves to cut interest rates and remove home purchase restrictions appear to have succeeded in luring buyers back into the market.
The nation’s property developers seem less convinced of the prospects of China’s housing market, however, as the growth rate of investment in new real estate projects continued a year-long slide, according to the latest batch of figures from the National Bureau of Statistics.
China’s government has prioritised the rekindling of the country’s real estate industry in 2015 as it struggles to keep top-line GDP growth figures in line with its projection of 7.0 percent for the year.
The continued reluctance of property developers to commit more cash to new projects has many observers predicting further cuts in interest rates and other measures to revive an industry that is said to account for as much as 15 percent of China’s economy.
Real Estate Sales Recovering Sharply in May
| Real Estate Sales in Jan-Jun 2015 | Value (RMB Bil) | % Growth Rate Y-o-Y | Area (Mil Sqm) | % Growth Rate Y-o-Y |
|---|---|---|---|---|
| Total buildings sold | 3425.9 | 0.100 | 502.64 | 0.039 |
| Housing space sold | 2894.1 | 0.129 | 443.89 | 0.045 |
| Office space sold | 130.7 | -0.018 | 10.64 | -0.024 |
| Retail space sold | 333.3 | -0.012 | 34.17 | 0.035 |
Sales of real estate in China were up sharply in May, bringing the growth rate in home sales, in terms of value, to 3.1 percent for the year to date, compared to the same period last year. The January to May figure was a dramatic change from the results for the year through April, which saw property sales lagging the mark for the first four months of 2014 by 3.1 percent.
In terms of sales of residential property, developers sold RMB 582 billion ($94 billion) worth of new units last month, an increase of 30 percent over May 2014, and the second straight month of growth in home sales.
The increase in new home sales follows soon after China’s central bank lowered down-payments for existing home owners who wanted to buy additional units. That move at the end of March, coupled with three cuts in benchmark interest rates since November, has moved China’s home sales back into positive territory in the last two months.
Developers Less Positive Than Consumers
Unfortunately for China’s economic authorities, the nation’s real estate business owners seem less encouraged by recent policy changes than the pool of cashed-up consumers that appear to be driving the sales rebound.
Growth in investment in development of new real estate projects slid to 5.1 percent over the first five months of the year, compared to the same period in 2014. The marginal rate of decline in growth is slowing compared to previous months, but is still down from the six percent growth recorded in the January to April period.
While China’s top leadership has been promoting the transformation of the economy towards a service and consumption-driven model (rather than relying too heavily on investment), the authorities also remain wary of any disruption that might result from making too abrupt of a shift.
Land Sales Still Slow, Local Governments Still Confident
For now those leaders seem still not to have convinced the nation’s property developers to buy more land sites. From January through the end of May, real estate investors bought 31 percent less land by area compared to the first five months of 2014. By the value of land purchased, transactions in the first five months of 2015 totalled RMB 219.2 billion, down 25.8 percent compared to the same period last year.
The slower sales of land, however, are largely driven by the calculations of local governments, who earlier this year withheld land from the market as demand dried up. Land sales in China’s first tier cities have recorded sharply higher prices in April and May with authorities in those areas dripping plots back into the market now that they are assured of getting the price that they want.
China’s local governments rely heavily on land sales for their revenues and many are reluctant to part with their precious plots at bargain rates, even when under cash-flow stress. Last month the central bank reopened a funding channel to allow provincial, city and district-level governments to borrow more money, thus enabling these authorities to continue to control land pricing.
During April this year, China Vanke, the country’s second-largest developer by sales, blamed a 57 percent drop in profit over the first quarter on aggressive land pricing by local governments.
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