• Fri
  • Nov 28, 2014
  • Updated: 9:15pm

More developers doubtful over mainland demand

PUBLISHED : Wednesday, 06 July, 2011, 12:00am
UPDATED : Wednesday, 06 July, 2011, 12:00am

Mainland developers are losing confidence in buying demand in the face of falling sales and expectations that the central government may announce more tightening measures, according to a survey by Standard Chartered Bank.

Fourteen out of 30 developers interviewed said they were 'less confident in market demand for apartments today than a month ago'.

While this left 16 developers reporting increased confidence, the poll indicated a clear deterioration in confidence since the bank's last survey, said Stephen Green, Stanchart's head of research for Greater China.

In the last survey, 23 respondents said they felt more confident about market demand.

The bank asked 30 developers in six cities for their views on prices, land banking, financing and sales, and their expectations for policy development. Only a few were listed companies, Green said.

This is the third of the bank's developer polls. The first two were published in July and November last year.

'The third edition ... reveals a sector which is under the weather, but still doing OK. Construction starts are not being delayed, but some sales launches are,' it reported.

Green said new rules that limited flat purchases to registered residents of the city were having a significant effect. Nineteen developers said the rules had hit their sales hard, while only eight reported sales were still doing fine, despite some impact. Three said the limits had not had any effect.

Green said sales of flats had fallen from their peak, but had not collapsed. Average selling prices looked firm. '[Developers] are still selling with a profit margin. We believe they are not in too much pain yet.'

But he raised concerns over a supply glut, especially in some second-tier cities, where he saw a worsening in the second half of this year. 'We estimate that there are three months' worth of inventories today in the 35 biggest cities, and that will rise to seven months by year-end. Developers are increasingly thinking about cutting prices. As inventories rise in the second half, the price-cutting incentive will also rise.'

He said developers were lowering prices by 5 to 10 per cent and the move had drawn a buying response.

He expected some second-tier cities with high inventories to be more likely to face price corrections.

Meanwhile, Samsung Securities (Asia) saw a potential acceleration in contracted sales momentum, which should bode well for developers.

But it was not the developers who were feeling the negative blow, the brokerage firm said. Local governments saw slower land sales amid declining appetite for land acquisitions as developers switched to prudent balance sheet and cash flow preservation modes. That had also started to affect local government financing.

'Coupled with a need for further funding to support development of social housing, we reckon that going into the third or fourth quarter this year, local governments are likely to subtly relax enforcement of purchase restrictions,' said Lee Wee Liat, Samsung Securities' regional head of property research. 'This will provide a window of opportunity for developers to sell their inventories rapidly.'

43.6%

The extent by which May sales of new homes fell year on year in Chongqing, the city with the biggest drop, property consultants say

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