China home sales rebound on policy easing though full recovery uncertain

Foshan-based businessman Meng Qinghong needed some convincing to return to the housing market after Beijing began clamping down on credit flows to the then-overheated sector, amid other curbs that began last year.

"Banks tightened credit over the past two years, so I was forced to a buy a smaller unit as I could not get mortgage loans from banks at that time," the experienced property investor said.

Now, after the local government eased home purchase restrictions in August and Beijing unexpectedly cut interest rates last month for the first time in more than two years, Meng has taken his cue from official efforts to stimulate the property market.

The manufacturer of ceramic fittings for developers has begun looking for a four-bedroom flat for his own use in central Guangdong city and plans to keep his current three-bedroom unit for rental investment.

"Home sales in Foshan have rebounded, with monthly transaction volume of one million square metres since August and have further improved after the rate cut," said Yu Hong, managing director of Centaline Property Agency's Foshan branch. This compares with sales volume of less than 700,000 sq metres in July.

However, Yu and other property industry figures say the stimulus policies have not moved prices. That is despite a significant policy relaxation in late September that included a redefinition of first-home buyers to widen the scope of preferential mortgage policies.

"As the end of the year approaches, developers are in a rush to sell and take advantage of improved sentiment," said Yao Huiqing, a sales manager at Foshan-based developer Xing Xing Property.

The annual supply of new flats in the city would reach 13 million sq metres this year, Yu said, against an expected transaction volume of nine million sq metres.

Moody's Investors Service noted last month that slow sales this year have compounded an oversupply problem fuelled by a solid pace of new housing starts. The high inventory levels will continue to pressure developers' working capital and weaken pricing power in 2015, it said.

The ratings agency also noted that of the nine first-tier and second tier cities that it tracks, inventory equated to 14.4 months of contracted sales at the end of September.

Investment bank Jefferies, monitoring a wider pool of cities, said inventory levels in 18 major cities dropped to 15.5 months in November from 18.9 months in July. It noted this was still far higher than the normalised level of nine to 12 months.

However, analysts said the relaxation measures and interest rate cut would succeed in boosting sales and inventories would continue to fall, especially in higher-tier cities.

Sales momentum continued in the last week of November, with a 10 per cent rise week on week, according to data from China Real Estate Index System (CREIS), which is run by the country's largest real estate website operator SouFun. For the 40 cities with data available, 28 cities saw positive month-on-month growth, while 22 cities recorded positive year-on-year growth.

Data for the following week underscored the fragility of market sentiment. Sales in the 41 cities that CREIS monitored in the week to December 7 dropped 13.5 per cent from the prior week.

The sustainability of any recovery hinges on Beijing's readiness to back up its efforts with further rates cuts.

The average price of a new home in 100 major cities was 10,589 yuan (HK$13,379) per square metre in November, down 0.38 per cent from October, the independent China Index Academy said.

Edison Bian, research head of China property research at UOB Kay Hian (Hong Kong), expects to see credit loosening continuing into the first half of 2015. "Transaction volume will recover first in other high-tier cities, where housing demands remain robust," Bian said.

For a prefecture-level city such as Foshan in a strong province, Shui On Land deputy project manager Dixon Man is still optimistic.

"Helped by the solid economy, the city will continue to attract investments and that will help the property sector," said Man.

Property prices would grow 10 per cent next year, he said.