China's record high property inventories seen as an opportunity by some players

China's property market is under record high destocking pressure but some players see opportunities for a leap forward to the industry's next stage.

Data from the National Bureau of Statistics showed the ratio of China's unsold property to annual sales more than doubled to 51.5 per cent last year, from 24.7 per cent in 2011. And it deteriorated in the first two months of this year, with sales falling and inventories piling up. The bureau did not provide unsold stock data before 2011.

Using data from domestically listed property firms, senior government researcher Ba Shusong told a forum last week that their destocking period was now close to historical highs set in 2008 and 2011, when the property market was also in a downward cycle.

"Developers said they were facing difficulties in 2008," Ba, from the State Council's Development Research Centre, said. "Now we can see the destocking pressure from A-share-listed developers' inventories and pre-sale revenues."

In 2008, some developers that are now among the industry's top players were just a few months away from going under. But the central government's multitrillion-yuan stimulus package saved them when it was introduced in the wake of the global financial crisis.

Nomura property analyst Jeffrey Gao said the pressure would ease in the first-tier cities of Beijing, Shanghai and Shenzhen in the second half of this year, as policy relaxation stimulated demand.

On Monday, the central bank lowered down-payment requirements for families buying second homes to 40 per cent from 60 per cent to 70 per cent previously. Those buying their first homes with borrowings from local governments' housing provident funds need to pay deposits of only 20 per cent.

A report from consultancy China Real Estate Information said the destocking period in Shenyang, Yantai and Sanya remained above 30 months at the end of February. If land reserves are considered, it will take cities like Ningbo, Jinan and Dalian more than 10 years to sell down properties built upon the existing land bank.

An industry downturn and the anti-graft crackdown have already pushed developers including Shenzhen-based Kaisa to the verge of bankruptcy. Others worrying about their own mortality are keeping more cash in hand, extending debt maturities and cutting land acquisition budgets.

Longfor, China's 14th biggest developer by sales, started its destocking efforts in 2012. "We treat inventories like cancers," chairman and founder Wu Yajun said.

Last year, the company sold more than five billion yuan of the 10 billion yuan in inventory left over from 2013, but added a few billion yuan of new unsold stock.

Some developers, including Sunac China, see a chance to expand via acquisitions. Its purchase of a stake in Greentown China failed last year and another deal to buy Kaisa might falter too.

But chairman Sun Hongbin said: "There will still be more merger and acquisition opportunities in the future as economic growth slows and some highly leveraged companies [land in trouble].