Business / Industries

House prices cool, sales plummet

By Hu Yuanyuan (China Daily) Updated: 2014-04-02 08:33

China Vanke Co Ltd, the country's largest property developer in terms of market value, opened its project along Beijing's South Sixth Ring Road on March 16, at a price of 21,000 yuan ($3,390) per square meter, 3,000 yuan lower than market expectations. The move was regarded as a strong indication of a cooling market.

According to Vanke Executive Vice-President Mao Daqing, there could be a problem with China's real estate sector this year because extremely high land costs have driven selling prices beyond the reach of many buyers.

"Vanke will drive up sales by keeping prices flat. We will be conservative about land purchases to ensure a healthy cash flow," said Mao.

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A tightened mortgage policy and a boost in the supply of government-subsidized housing resulted in a strong wait-and-see attitude in the market, leading to a fall in transactions and market expectations of prices, said Zhang Dawei, chief analyst with property agent Centaline.

"You can hardly find a bank that will offer a discount in the mortgage rate for first-time homebuyers, although theoretically they can enjoy a favorable rate that is 15 percent off the benchmark interest rate," said Zhang.

Meanwhile, supply and demand have also changed. In Beijing, for instance, the demand and supply for a project with a unit price around 20,000 yuan per sq m was 4-to-1 last year. But the ratio has fallen to 2-to-1 currently, according to Zhang.

The Beijing municipal government has a plan to introduce 50,000 units of government-subsidized homes into the market this year. Moreover, the central government work report released earlier this month pledged to improve the affordable housing system and set a target to begin construction on more than 7 million units and complete more than 4.7 million units of affordable housing in 2014.

However, a collapse in China's market is unlikely because most listed developers still have a solid cash flow. But different companies, products and cities will have different scenarios.

"I don't think there will be a collapse of the whole market, and problems will occur mainly with small developers with limited financing channels," Mao said.

Moody's Investors Service Inc liquidity index for Chinese property developers - which measures the number of rated developers that have inadequate liquidity - was at 18.4 percent in February, the same level as at the end of December 2013.

"We expect our rated Chinese property developers will achieve positive but smaller growth in sales revenues over the next 12 months, while maintaining adequate liquidity," said Kaven Tsang, a Moody's vice-president and senior analyst.

But the recent bankruptcy of Zhejiang Xingrun Real Estate Co (unrated) could prompt banks to become more cautious in managing their exposure to the property sector.