Experts see lengthy downturn, but no collapse for China's property sector

While home prices will consolidate, government to ease cooling measures to avert a hard landing

PUBLISHED : Wednesday, 25 June, 2014, 1:30am
UPDATED : Wednesday, 25 June, 2014, 5:27am

Be prepared for the downturn in mainland property to last for several years, but fears of a market collapse are overblown, industry consultants say.

While it is inevitable that home prices will consolidate, they say the central government is likely to show some flexibility in allowing an easing of cooling measures for some cities amid a slowdown in the mainland's economy.

Officials would also seek to avert a hard landing in the market, they add.

More resilience is expected to be seen in first-tier cities and major second-tier cities, given the limited supply and strong demand.

Since the start of this year, the housing market has experienced downward pressure, hit by the tightened credit from banks to property-related companies, corporate bond defaults and a high-profile anti-corruption drive.

Falls in new home sales in the first quarter were sharpest in the first tier cities, where transactions plunged 32.2 per cent year on year. The bigger second tier cities recorded a 21.1 per cent decline, with the lower rung of second tier cities seeing a 7.9 per cent drop. The downward trend has since slowed in the mainland's housing markets, DTZ says.

"We are expecting that the central government will allow more tolerance on relaxation of the local cooling measures for cities which rely heavily on the real estate industry," said Alan Chiang, DTZ's head of residential, Greater China.

Concessions have been seen in some cities, such as Wuxi in Jiangsu province lowering its entry level for residency via real estate investment.

Beijing's move this month to cut the reserve requirement ratio for a number of mainland banks would also help release more funds to the market, Chiang said.

"The consolidation period may last for two to three years, and we would expect that the real estate market will return to end-user driven demand and prices will return to more affordable levels, particularly in third tier or fourth-tier cities," he said. But Chiang does not believe the market will collapse.

His views stand in contrast to those of industry figures who take a bearish stance on the housing market. "China's property market is like the Titanic and it will soon hit an iceberg in front of it," Pan Shiyi, the co-founder and chairman of commercial property developer Soho China, told a forum last month.

David Ji , director and head of research and consultancy, Greater China at Knight Frank, said price growth in the first half of 2014 slowed to a mere 2 to 3 per cent in first-tier cities and 1 to 2 per cent in second-tier cities.

Ji expects home prices in urban areas to remain resilient in the second half of 2014, but growth would be limited to 3 to 5 per cent in first-tier cities and 1 to 2 per cent in second-tier cities as the market continued to soften.

In suburban areas of the major cities, where aggressive price cuts have been seen in recent months, overall home prices are forecast to decrease 5 to 10 per cent in first-tier cities and 10 to 15 per cent in second-tier cities during 2014.

Ji said that developers, facing high debt ratios amid credit tightening on the mainland, are expected to offer more aggressive price cuts to meet sales targets, clear inventory and raise cash in the second half of 2014. This would be most evident in lower-tier cities, he said.