China’s rescue balm fails to soothe housing pain as inventory overhang, poor sales rankle
- ‘Developers are rushing to offer discounts to clear inventory’ as buyers’ confidence is ‘very weak’, says Andy Li, China CEO of Centaline Property Agency
China’s ambitious rescue package for its crisis-hit property sector has impressed neither investors nor analysts, some of whom have lowered their forecasts as prices remain under pressure amid a mammoth supply overhang and tepid demand.
In May, 30 major Chinese cities recorded a total transaction volume of 10.8 million sq m in new home sales, an increase of 4 per cent when compared with April, according to China Real Estate Information Corporation (CRIC). It advanced 23 per cent versus the first quarter’s monthly average of 8.77 million sq m but fell 34 per cent when compared with sales volume in May last year.
“We estimate a full-year decline between 5 and 10 per cent for new home prices this year, not much has changed versus the pre-policies period,” said Raymond Cheng, managing director of CGS International Securities Hong Kong, who added that the jump in footfall traffic had not translated into proportionate increase in sales.
“Developers saw their sales improve but not rapidly as expected. It has not yet translated into a rally in transactions or prices, as buyers remain cautious,” he said, citing feedback from six major developers, including China Overseas Land and Investment, China Resources Land, and Longfor Group.
China’s housing market crisis triggered by Beijing’s “three red lines” policy launched in August 2020, starved weak developers of funds and triggered more than US$160 billion of junk-bond defaults, according to a Goldman Sachs’ estimate. Secondary home prices have slipped 20 per cent while new home construction weakened 16 per cent from their peaks, the investment bank said.