May 5, Rising inventories among China’s property developers might force some to slash prices in the near-term to offload projects.
China’s 136 listed developers had combined inventories of RMB 986.5 billion in the first quarter of the year, up more than 40% from RMB 704.1 billion in the same quarter last year, according to financial data provider Wind Co.
The data show the inventory of four of China’s largest developers, China Merchants Property Development Co. Ltd. (000024.SZ), Gemdale Corp. (600383.SH), China Vanke Co. Ltd. (000002.SZ) and Poly Real Estate Group Co. Ltd. (600048.SH), reached RMB 40.8 billion, RMB 52.2 billion, RMB 150.9 billion and RMB 127.1 billion in Q1, respectively.
The four developers’ combined inventories accounted for almost 40% of the 136 firms’ total.
According to Wind data, 113 of the 136 listed developers (excluding firms with special treatment) had combined revenues of RMB 54.65 billion in Q1, compared to RMB 57.44 billion a year earlier.
China Vanke saw its sales growth slow down in April compared to the previous three months, which company board secretary Tan Jiehua said was due to the effects of China’s property curbs.
“It’s obvious that the curbs are playing a big role in the property market, and as more property offerings will be available, developers will have more pressures from surging inventories,” Tan told the 21st Century Business Herald, adding that China Vanke would stick to its strategy of quick-fire sales in the face of such pressures.
“More properties are expected to come onto the market in May and June, and for those brand-new ones, developers will probably offer lower prices to boost transactions,” analyst Yang Guohua from Orient Securities said.
“The market will [in the coming months] experience rises in home transactions but drops in prices,” Yang said,
“Some developers already saw losses last year, and it’s likely that some of them will take the lead in cutting property prices, which will lower average home prices as a result,” said Zhang Dawei, a marketing director from real estate agency Centaline Property’s Beijing office.
Noticeably, on the last day of April, home buyers raced to snap up apartments in the southern Chinese city of Shenzhen, where large developers including China Vanke and China Overseas Land & Investment Co. Ltd. (0688.HK) offered discounts on some of their residential projects.
“China Overseas Land’s price cuts are just a start, and more projects [from more developers] will follow suit in the upcoming future,” a Shenzhen-based developer told the 21st Century Business Herald.
Developers Sitting On Projects
A growing number of developers are choosing to hold back their projects while watching closely changes in the market.
In Shanghai, 255 residential property projects have been held back from the market in the past six months, and only 29 were released in the first four months of this year, according to market data.
“Developers holding back projects are all taking a chance to see if the market will rebound any time soon, and they are pretty much waiting for as long as they can,” said Chai Yifeng, a veteran property watcher based in Shanghai.
Lower-Tier Cities See Faster Rises
While prices are slowing or falling in some major Chinese cities, prices in lower-tier cities are climbing.
A report co-produced by Professor Zhao Xiao from the University of Science and Technology Beijing and financial analyst Li Huizhong from Gaohe Investment, China’s first real estate investment trust, indicates an average 6.2% rise in home prices in first-tier cities during the past quarter. Prices in second-tier and third-tier cities rose on average by 9% and 10%, respectively, over the same period, according to the report.
“In the second quarter or probably throughout the year, home prices in T2 and T3 cities will rise more rapidly,” Zhao predicted in the report.
“This may be the reason why developers with projects across the country are not willing to lower prices so soon,” said Su Xin, president of Gaohe Investment.
Extending Home-Buying Restrictions
China may consider extending its home-buying restriction order to more cities in an effort to prevent speculative money from flooding into lower-tier cities, a source claiming familiarity with the Ministry of Housing and Urban-Rural Development was widely cited as saying in Chinese media reports.
But Zhao said judging from the current implementation of the restriction measures, an extension to more cities would not make any substantial difference on prices.
edited by Kendra KE Business China