Outlook gloomy despite big rise in transactions

PUBLISHED : Wednesday, 11 April, 2012, 12:00am
UPDATED : Wednesday, 11 April, 2012, 12:00am


Home sales on the mainland rose strongly last month after major developers cut their prices aggressively, but the outlook remains uncertain.

KWG Property yesterday reported pre-sales of 1.03 billion yuan (HK$1.27 billion) for last month, up 73 per cent from February. Evergrande Real Estate and Shimao Property earlier reported monthly sales increases of 138 per cent and 93 per cent, respectively.

While the bigger developers are expected to continue to offer discounts to prop up sales, smaller players with weak balance sheets are folding under the pressure of the price war and tightened credit conditions. Early data for this month suggests the sales burst in March may be losing its momentum.

Privately run Hangzhou Glory Real Estate is reported to have filed for bankruptcy, and property agents have warned of more such cases.

'We can expect more smaller players to file for bankruptcy because of liquidity problems,' said Li Wenjie, the head of Centaline Property Agency for the northeast.

According to Centaline, 38 property firms across the country sought to sell part or all of their equity interests in the first quarter, compared with 23 in the same period last year.

Already facing cash-flow problems, these developers were plunged into a deeper crisis with the price war.

Li said he expected prices to fall by up to 15 per cent from last year's level as developers sought to boost sales.

March sales indicated that the price cuts had lured buyers back to the market.

Macquarie Equities Research said in a report yesterday that China Overseas Land & Investment sold 456 flats at Hangzhou Le Cite at an average 16,000 yuan per square metre, compared with 21,000 yuan last year.

But sales slowed last week, according to the research institute, China Real Estate Index System.

The institute said in 28 of the 40 cities it monitored, sales showed a week-on-week decline. Fifteen cities showed a drop of more than 50 per cent. In Shanghai and Chongqing, the fall was more than 40 per cent.

'While we attribute the low transaction volume to the holiday effect (the Ching Ming Festival fell last week) ... we have to admit that we are still in a weak market,' Macquarie's analysts David Ng, Jeffrey Gao, Raymond Liu and Terence Chang wrote in the report.

Macquarie believes more policy relaxation or credit loosening is needed to sustain the March sales momentum.

'In addition, we expect major developers will continue their strategy, such as price discounts, bonus gross floor areas, more small-unit products, to achieve quick asset churn,' it said.

While Macquarie believes the market bottomed out in February, Centaline said the worst was yet to come.


The number of flats sold in Wuhan last month, the most in the city in 14 months