China property investment cools in May

Bidding restrictions or land-price ceilings appear to be putting brakes on sector.

PUBLISHED : Monday, 13 June, 2016, 9:17pm
UPDATED : Monday, 13 June, 2016, 11:14pm

After four months of growth, property investment in China cooled slightly in May, and analysts now think the momentum is unlikely to recover into the second half of the year.

From January to May, investment amounts rose 7 per cent, just weaker than the 7.2 per cent growth January to April, the National Bureau of Statistics said on Monday.

The number of property sales also showed signs of cooling after rising 33.2 per cent in the first five months, compared with a rise of 36.5 per cent in the first four months.

“The decline is not surprised as some cities have tightened home-buying policies to cool the market,”said Nicole Wong, CLSA’s regional head of property research.

More cities have followed the lead of Shenzhen and Beijing by rolling out tighter home purchase restrictions or land-price ceilings for bidders, in an effort to rein in overheated prices.

In Beijing’s Tongzhou district, sales of commercial residential apartments slumped 99 per cent to 13 units in May from the previous month after the government limited the right to buy the sites to certain groups of people.

Analysts said the replacement of business tax with value added tax in the property sector had also decelerated investment, with many projects established by developers intentionally ahead of the May 1 effective date, to avoid any uncertainties.

Analysts are now sceptical about any further recovery in numbers, as market divergence continues and oversupply remains serious in lower-tier cities.

James Macdonald, director of China research at property consultancy Savills, said overall market data at national level still appeared promising in May, with growth rates generally declining but remaining relatively high.

“The picture overlooks the imbalance between pricing and volumes, however, between higher- and lower-tier cities, both in the land and property markets.”

Wong said the strong performance in the first four months was primarily driven by less mortgage restrictions and lower interest rates under the central bank’s easing policies.

“The excess liquidity has pushed up home prices and resulted in panic buying in big cities, ” she said. “Such recovery is not sustainable.”

The excess liquidity has pushed up home prices and resulted in panic buying in big cities
James Macdonald, director of China research at property consultancy Savills

On the other hand, however, inventory reduction remains a tough task in smaller cities.

China Real Estate Information Corp noted in a research report on Monday, that although unsold floor space has declined consecutively in the past three months, the number is still high, especially in third- and fourth- tier cities where demand is insufficient.

It said local governments should strictly control land supply in an effort to stimulate sales of existing inventory.

In a latest move, the Dalian government unveiled a new plan to reduce or even halt residential land supply in oversupplied areas, and allow change of use by developers on certain unconstructed land to help destocking.