Mainland China property sales tipped to grow 5 per cent in 2016

Home prices and sales on the mainland are set to grow 5 per cent next year, aided by further government policy easing, according to global ratings agency Standard & Poor’s (S&P).

“To maintain GDP growth at 6.5 per cent next year, the Chinese government will continue to take supportive measures for the real estate sector,” S&P credit analyst Dennis Lee told a media briefing on Monday.

The central government has introduced a series of measures since late last year to help the property sector recover, including rate cuts and lifting home buying restrictions. As a result, housing sales increased 18 per cent year on year in the first 10 months of this year.

The National Bureau of Statistics has said it expects the adjustment in the housing market will continue as inventory levels in smaller cities remain high.

At a government meeting early this month, President Xi Jinping urged the reduction of property inventory so that the property sector could enjoy sustainable development.

Ningbo, a third-tier city in East China, announced on Monday that it would lower the down payment ratio for loans to some second home buyers from its housing provident fund from 30 per cent to 20 per cent. North China’s Shanxi province decided last week to remove purchase restrictions on the age and residency status of buyers and the number of houses they are allowed to buy.

S&P said it saw room for local governments to continue policy loosening, such as further lowering mortgage loan rate and cutting down payment ratios.

As market sentiment in China was heavily driven by policy, it forecast that sales and prices would grow by up to 5 per cent next year.

It added that price growth in first-tier cities such as Beijing and Shanghai would be bolstered by increasing population and less inventory. The average inventory in first-tier cities is less than 10 months at the present rate of sales, versus 14 months in second-tier cities and 20 months in third-tier cities.

However, investment bank Jefferies has warned of continued pressure on developers’ profitability.

It said it was concerned about overheating land prices in big cities, with most new land acquisitions in Beijing in the second half of this year more expensive than comparable home prices.

“The resultant (gross) margin can reach 30 per cent only if sales price climbs at least 20 per cent a year,” it said in a report. “From a government perspective, this extent of price growth is unlikely to be accepted.”

S&P said the margin for developers with high exposure in smaller cities was more at risk due to inventory overhang.