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China New Housing Sales Down by 7.8 Percent in 2014 as Buyers Stay Home

2015/01/21 by Michael Cole Leave a Comment

China housing sales slump

These guys will need to clear some inventory in 2015

China’s new housing sales fell in value by 7.8 percent in 2014 driven by a decrease in sales and rising inventories of unsold homes.

According to a report released this week by China’s National Bureau of Statistics, sales of new homes in terms of total space sold were down still further, by 9.1 percent last year compared to 2013, totalling a still staggering 1.05 billion square metres nationwide.

The official figures did show some improvement in sales for December compared to the first 11 months of the year. However, despite the growing number of transactions, the country’s real estate developers may continue to struggle as inventories of unsold homes grew even faster, reaching a record 407 million square metres by year end.

Sales Began to Recover in December – Still Down for the Year

While the bureau does not release sales and investment figures for each month, the full year figures this week showed home sales beginning to improve in December, compared to the results for the first eleven months of the year.

IndicatorTypeRMB Bil% Chg/2013
Investment in Real EstateAll950410.5%
Residential Building InvestmentResidential64359.2%
Office Building InvestmentOffice56421.3%
Retail building investmentRetail143520.1%
Sales of Buildings by ValueAll7629-6.3%
Sales of Residential Buildings by ValueResidential6240-7.8%
Sales of Office Buildings by ValueOffice294-21.4%
Sales of Retail Buildings by ValueRetail8917.6%
Value of Land Transactions10021.0%
Funding Sources for Real Estate Development Companies12199-0.1%
Funding From Domestic Loans21248.0%
Funding From Foreign Investment6419.7%
Self-Funding50426.3%
Other Sources of Funds4969-8.8%
Deposits and Advance Payments3024-12.4%
Personal Mortgages1367-2.6%
Source: NBS and Mingtiandi

In terms of square metres of homes sold, sales were down by 9.1 percent for the full year, compared to 2013. However, this full year total is more encouraging for the industry than the 10.5 percent drop-off that China’s developers were looking at in November compared to the first eleven months of the previous year.

IndicatorTypeMil Sqm% Chg/2013
Floor Space Under ConstructionAll72659.2%
Residential Buildings Under ConstructionResidential51515.9%
Office Buildings Under ConstructionOffice29921.8%
Retail Buildings Under ConstructionRetail94317.0%
Floor Space of New Construction StartsAll1796-10.7%
Floor Space of Residential Building StartsResidential1249-14.4%
Floor Space of Office Building StartsOffice736.7%
Floor Space of Retail Building StartsRetail250-3.3%
Floor Space of Buildings CompletedAll10755.9%
Floor Space of Residential Buildings CompletedResidential80872.7%
Floor Space of Office Buildings CompletedOffice3112.7%
Floor Space of Retail Buildings CompletedRetail12111.3%
Floor Space of Buildings SoldAll1206-7.6%
Floor Space of Residential Buildings SoldResidential1052-9.1%
Floor Space of Office Buildings SoldOffice25-13.4%
Floor Space of Retail Buildings SoldRetail917.2%
Floor Space of New Real Estate for SaleAll62226.1%
Floor Space of New Residential Buildings for SaleResidential40725.6%
Floor Space of New Office Buildings for SaleOffice2634.4%
Floor Space of New Retail Buildings for SaleRetail11826.0%
Land Acquisition by Area334-14.0%
Source: NBS and Mingtiandi

Not all of the sales improvement was due to discounting last month either, although the renminbi value of housing sold was down 7.8 percent in 2014, compared to 2013, totalling RMB 6.24 trillion. December actually saw China’s developers catch a positive bounce compared to the totals for the first eleven months of the year when sales values were down 9.7 percent compared to the same period the previous year.

China real estate sales growth

The growth rate in overall real estate sales by floor space (yellow) and by value (blue)

Easier Financing May Be Leading to More Sales

During late November China’s central bank cut interest rates and over the last several months the country’s financial authorities have taken steps to encourage more mortgage lending at cheaper rates. The lending incentives following months of rollbacks in housing prices restrictions in earlier in the year.

The recovery in sales volumes and values correlate with the bureau’s figures on average housing prices released on Sunday which saw the month to month drop in average housing prices continue to taper last month. Including subsidised housing, average home prices fell by 0.4 percent in December, slowing down from a 0.57 percent drop. December was the eighth straight month of falling housing prices according to the bureau’s statistics.

Inventories Build to 40 Million Square Metres

Despite the December recovery in sales, China’s developers still face a major challenge as unsold inventories of new housing continued to grow to 40.68 million square metres by the end of the year. On a year to year basis, the supply of unsold homes grew more than 25 percent.

Nationwide the country added 1.35 million square metres of unsold homes last month, despite reducing the amount of new projects launched onto the market in December.

There continued to be a disconnect between housing in the pipeline and housing sales as well, with developers adding 5.9 percent more homes in progress nationwide by the end of the year, reaching 515 million square metres of homes under construction.

Land Sales Down by 14 Percent

Within this growing pipeline of housing, however, there are signs that real estate companies are becoming more selective about their projects, with less land being sold, but for higher values.

China land sales growth rate

China land sales growth rate in 2014 (by area sold)

In terms of area, land sales were down by 14 percent to 33 million square metres in 2014, however, the amount paid for these sites rose by one percent to RMB 1 trillion.

The shift toward purchases of less land for more money corresponds with a movement by many developers away from China’s oversupplied smaller cities, toward first-tier cities where the housing markets are seen as more reliable.

Investment in Housing Still Grew 9.2%

Despite the lack of good news for China’s real estate developers, the property companies continued to invest in new projects, with overall investment in the industry up 10.5 percent to RMB 9.5 trillion. For the residential sector, growth was slightly slower at 9.2 percent, although it still totalled RMB 6.4 trillion for the year.

investment growth rate

Cumulative month by month breakdown of China real estate investment growth rate in 2014

However, the residential sector appears to be losing favor rapidly in recent months as the growth rate has been tapering sharply following the first quarter.

At the end of February, China’s year to date growth rate for real estate investment still stood at 19.3 percent. By the end of November it had slowed down to 11.9 percent, and by year end, the growth rate for real estate investment last year had slowed down to just 10.5 percent over 2013.

The year-end figures show an industry still searching for a path to growth, with the current slump not likely to be resolved until housing inventories begin to shrink.

In the meantime, there are likely to be far few new project starts in emerging cities, while competition for prime sites in China’s largest urban areas continues to grow.

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Filed Under: Research & Policy Tagged With: crebrief, highlight, investment, National Bureau of Statistics, Sales

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