China’s roaring housing markets unlikely to see much calming from new price-cooling measures, developers say

PUBLISHED : Tuesday, 29 March, 2016, 9:34pm
UPDATED : Wednesday, 30 March, 2016, 5:58pm

The pace of house price inflation in China’s biggest cities is unlikely to cool significantly, even as the government intensifies tightening policies, according to the country’s leading developers.

“Prices will still rise in first-tier cities,” Evergrande Real Estate Chairman Hui Kayan said. “Home buying demand is very large, and they have strong purchasing power as the economy is robust.”

The Guangdong-based Evergrande, China’s third largest developer, reported 2015 core profit, excluding one-off items, decreased 9 per cent to 11 billion yuan (HK$13.1 billion). The company currently has 72 per cent of land investments in first and second-tier cities, and it expects to raise this proportion to 75 per cent in next few years in a bid to improve its returns.

During the weekend, Shanghai, Shenzhen,Wuhan and Nanjing tightened home purchase policies by varying degrees to rein in surging property prices.

Shanghai issued the most aggressive policies in the city’s history, including increased down payments for second home purchases. Buyers of second homes, which are classified by regulators as luxury housing, must put up 70 per cent of the property’s value, while non-Shanghai resident cannot buy a flat unless they have paid income tax or social security premiums in the city for five consecutive years.

“Beijing may follow and issue enhanced tightening policies,” said Sun Hongbin, chairman of luxury property developer Sunac China.

Sun said government wanted to curb “panic buying” due to limited supply. He added that the measures will have a negative impact on transactions volume and some luxury home prices, but overall the market should remain healthier than smaller cities.

Sunac reported its core profit declined 9.5 per cent to 3.3 billion yuan in 2015. The developer said it will still focus on projects in Beijing and Shanghai, and planned to enter Shenzhen, Guangzhou and Xiamen by year end.

A dearth of available sites in Shenzhen meant that he would seek to acquire land through merger and acquisition opportunities.

For the most part, developers said they are upbeat about the prospects in first and second-tier cities, and said would not buy lands in lower-tier cities, despite the government’s efforts to shore up these housing markets.

In presentations given during their annual results briefing on Tuesday, Longfor Properties and Greentown China said they plan to pull out of third and fourth-tier cities.

Greentown’s gross profit narrowed to 18 per cent owning to its weak sales in lower tier cities.

“We target to clear our stockpile in third and fourth-tier cites by 2017,” said Greentown Executive Director Li Qingan. He added that he expected the company's gross margin to improve after its shift in focus to bigger cities.

In terms of governments’ strict tightening on luxury projects, Longfor and Greentown said they plan to keep developing high-end projects to tap the growing demand for improved housing.

But Greentown said they would consider to develop more small-sized luxury units to lower the cost for upgraders under the tightening rules.

Evergrande was positive about the overall property market this year. It forecasted its contracted sales would reach 65 billion yuan in the first three months, a 113 per cent jump from the same period last year.