Sluggish sales in real estate

After months of steely resistance, Chinese property developers have finally accepted the inevitable and are cutting prices to boost falling sales.

Whether the move succeeds in putting a floor under the market will help determine the fate of the economy over the coming year.

Real estate accounts for 24% of China’s fixed-asset investment and is crucial not only for domestic steel makers but also for global producers of myriad construction inputs such as aluminum and copper.

Jonathan Anderson, a UBS economist in Hong Kong said he expects property and construction activity to stabilize and rebound in the first half of next year.

But many developers, harried by declining sales and financing constraints, are less optimistic.

Prices in major cities such as Shenzhen have plunged by up to 40%.

Average property price inflation in 70 large Chinese cities slowed to 5.3% in the year to August from 11.3% in the year to January.

For some developers, selling unsold homes at a discount is their last hope to survive.
More on this HERE.
Source: Reuters

Zhang Xin

Zhang Xin, chief executive, Soho China, one of the mainland’s biggest commercial property developers, said she expects Beijing to announce further measures to loosen its tight control of the property market to avoid a slump.

She said, ‘The property market is very important to China. It accounts for 10% of GDP and affects many other industries such as banks. I don’t think the government will want to see a hard landing.’

China’s property market has seen a significant slowdown this year after the government put in a series of regulations, such as a restriction on mortgage lending, to take the steam out of the sector.

The volume of property transaction fell 36% in Beijing in August, according to Soho China, and dropped by an even bigger degree in Shanghai.

In a move to boost the domestic economy and the property sector, China’s central bank this week cut the country’s benchmark interest rate for the first time in six years.

Zhang Xin said she expected China’s regulators to reveal more policies to rebuild confidence in the property market amid increasing signs of disastisfaction from real estate investors.
Source: Financial Times

Vanke Gold Garden apartments

Bargain-priced Chinese property projects will be up for grabs in coming months as developers scramble to survive falling home sales and a financing crunch.

But foreign funds hoping to take advantage of the industry’s troubles can no longer expect a big fire sale.

The Chinese government has intelligently eased the tough measures it to cool the market at the end of last year.

When Beijing upped the ante in a fight against property speculation last year by ruling that buyers of second homes must make down payments of 40% on those properties, apartment sales and prices slid in the southern cities of Guangzhou and Shenzhen.

Some fund managers believed their time had come, and cheap deals would give them access to a Chinese property market where a yearly influx of eight million people into cities means long-term potential for profit.

Chris Gradel, managing partner at Pacific Alliance, which manages about $4.5 billion in alternative-asset funds targeted at China and Vietnam said, ‘We expected there to be a lot more guys going under and a lot more forced-sale situations.’

It did not happen. Gradel described the resilience of Chinese developers as ‘one of the biggest surprises of the year.’

Much more HERE.
Source: International Herald Tribune

Credit Suisse said it maintained its ‘overweight’ rating on China’s property sector despite June new home sales showing weakness in several key provincial cities. It believes a recovery is possible by the fourth quarter.

Credit Suisse analyst Ronney Cheung said low sales figures do not bode well for China’s listed developers who are now struggling to meet their year-end goals.

Transaction volumes from all cities were down 23-56% month-on-month with the exception of Beijing and Tianjin, up 15% and 13% respectively. Shenzhen was the hardest hit, with transactions tumbling 38% month-on-month.

Sales are expected to remain stagnant up to September on fears of potential rate hikes by the central bank in a bid to fend off growing inflation and still-lower transaction volumes during the Olympic Games.

However, there should be a turnaround.

Ronney Cheung said, ‘A recovery in transaction volumes should be expected from September onwards, due to the removal of several concerns and pent-up demand. We estimate developers may further cut prices in order to meet their funding needs and to achieve their sales targets.’
Source: Quamnet

The headline comes from the International Herald Tribune which is not normally given to gloomy stories.

It reports that although official figures show investment in property rose 32% in the first four months from a year earlier, developers are worried as bank loans dry up and the cost of tapping other sources of funds rises.

Falling home sales are a particular threat to developers, who typically rely heavily on cash from the sale of unfinished projects to pay for operations and expand.

According to the China Index Academy, which is affiliated with SouFun.com, a leading real estate Web site, the number of residential transactions in Beijing fell 13.7% in April from March and was down 56.4% from a year earlier.

Not a happy scene.

Zhang Xinming, chairman of Walter Asia, a developer based in Jiangxi Province, said maximizing cash flow was now his main strategy.

Walter Asia has accelerated the development of land that it had bought cheaply, hoping to cash in quickly.

It is also shifting its focus from high-end housing preferred by investors to more affordable apartments that are still in demand by regular home buyers. Which is what the government wanted to happen.

Zhang Xinming said, ‘The ability of Chinese developers to get through the harsh winter is growing.’
Source: International Herald Tribune