Declining home sales in smaller Chinese cities during Lunar New Year point to longer term troubles
- Housing market in tier 3 and 4 cities hit by removal of government subsidies, general lack of demand
- Slum redevelopment plans were single largest driver of property boom in 2016-18 and reductions could hurt growth
Property developers in China’s tier 3 and 4 cities have reported disappointing home sales during the traditional Lunar New Year buying season this year. And their troubles might not end here, according to industry insiders.
According to analysts, a combination of factors is affecting the market in mainland China’s smaller cities, ranging from short-term concerns such as a slowing economy and souring property sector outlook to a general lack of demand. And a planned removal of government subsidies may worsen the situation.
“The prices in tier 3 and 4 cities may come under the greatest pressure, especially after the central government slows down subsidies for households relocated due to slum redevelopment,” said Raymond Cheng, property analyst at financial services provider CGS-CIMB. He estimated a decline in sales in smaller cities would lead to a 10 per cent drop in China’s overall sales volume this year.
“Tier 1 and 2 cities saw healthy demand from a robust economy and population inflows. [This was] not the case with other cities,” he added.
Disappointing sales during Lunar New Year, when people returning from China’s big cities buy apartments, do not bode well for the coming year. According to consultancy CRIC, home sales in 28 tier 3 and 4 cities fell by 23 per cent year on year in the January 28-February 10 period, as opposed to 4 per cent in tier 2 cities.
Home sales fell by as much as 73 per cent in Jinjiang, a city in China’s south-eastern Fujian province. Sales in Shaoguan and Huizhou in the southern Guangdong province too fell by more than 70 per cent.