Chinese developers see stock on the rise despite government measures to boost sales
Top Chinese developers face a long battle to reduce inventories despite a broad recovery in the housing market after figures showed a surge in their stock of unsold housing last year.
In 2015, the top 20 property firms’ total stock value of completed housing increased 24 per cent on year to 460 billion yuan. If all the listed developers are factored in, the total came to 5.88 trillion yuan, a 25 per cent year on year rise, according to the latest research report published by China Real Estate Association.
“Although sales rebounded last year, unsold new homes are increasing, which indicates that the problem of excess supply in some cities is still very serious,” said Ding Zuyu, chief executive of E-House China, a real estate services company.
Developers still face a lot of pressure because of previous misdirected investments in some small cities where demand is very weak, he said.
“Destocking needs a long term effort and cannot be immediately solved by policy,” said Ding.
Property investment and new construction in China picked up strongly in the January-April period, rising 7.2 per cent and 5.8 per cent respectively.
Ding said developers are not irrational and the increased investment was because they had shifted their development focus to first- and second-tier cities.
With land costs skyrocketing and competition intensifying, Ding said industry consolidation is speeding up and some smaller players would be pushed out .
However, some analysts said government efforts to reduce inventory have had some effect.
Oscar Choi, head of Asia-Pacific property at Citi Research, said that if the land situation was taken into account, housing inventory was actually declining as the government has slowed land sales.
Land sales revenue fell 24 per cent in 2015, official data showed.
“In the first four months, property sales expanded 36.5 per cent, while land sales dropped 6.5 per cent. This is the best example to show the government’s determination to clear inventory,” Choi said.
In terms of the liquidity environment, Ding of E-house said the ultra-loose monetary policy of the first quarter is unlikely to continue as the central government has recently begun warning of the high leverage accumulated in the sector.
But he said he doesn’t think policy will be tightened much, for example by raising minimum downpayment requirements, as such a move could hurt the wider economy.