Nearly all mainland cities registered a sharp rise in residential sales last month, underpinned by recent interest rate cuts and other supportive measures by the government.
Yet there is little cause for celebration. Despite the increased sales and Beijing’s continuing bid to stimulate the economy, including the property sector, hopes for a speedy recovery in a housing market that has slumped since the middle of last year are low.
Market watchers have yet to reach a consensus as to when the sector will fully recover, but some believe that prices will bottom out only in 2010.
“We expect to see further property price cuts in the next couple of months to boost sales volumes. Towards year-end, developers will have rising cash outlays, as they need to settle taxes, interest payments and construction workers’ back pay before the Lunar New Year holiday,” said Jing Ulrich, chairman and managing director of JP Morgan.
With the domestic economy expected to weaken further, she said the threat of rising unemployment and income insecurity would be the main stumbling block for a recovery in the market.
Last month’s rebound in transactions was largely a result of discounting by developers and government policies beginning to take effect, Mrs. Ulrich said.
However, she pointed out that the increase in transaction volumes was off a relatively low base.
New housing sales in Shanghai were only 958,000 square metres in October, or about a quarter of the peak level in mid-2007.
“With more commercial banks recently offering discounts to their mortgage offerings, home buyers who had previously held off during September and October have returned to the market. This is a sign that confidence is returning,” she said.
Beijing’s support measures that took effect on November 1 also helped trigger a big jump in housing sales in almost all cities, including Shenzhen, Beijing and Shanghai.
Sales of new homes in Shenzhen, worst hit by earlier cooling measures, with prices tumbling up to 50 per cent since the second quarter of last year, shot up 90 per cent last month from the previous month to 6,435 units. Pre-sales in Beijing were up 64 per cent, and those in Shanghai jumped 36 per cent.
Prices in Beijing dropped between 15 and 20 per cent, and those in Shanghai fell between 10 and 15 per cent.
First-time homebuyers of flats smaller than 90 sqmetres will pay less down payment, 20 per cent instead of 30 per cent. Both first-time buyers and those upgrading will benefit from mortgage rates reduced to 70 per cent of base lending rates.
Other preferential measures are a cut in property deed tax to 1 per cent from 1.5 per cent and the abolition of the 0.05 per cent stamp duty and value-added tax for purchases.
Nevertheless, the sales growth has swiftly lost steam in the week to December 7. Beijing saw a 4.29 per cent drop week on week to 2,102 deals, while transactions in Shanghai fell 1.66 per cent to 3,966 during the same period. Shenzhen edged up 0.41 per cent to 1,559 units.
Adrian Ngan Wai-hung, an executive director at CCB International Securities, warned it was too early to say that a long-term recovery had set in, judging only by the past one or two months’ figures.
“Consolidation of the property market will continue,” he said, adding that it would take more than a year for the market to absorb excess inventories.
His remarks came after a top government-backed think-tank said on December 3 that the property market had entered a lengthy correction because genuine buyers remained on the sidelines in fear of more price declines.
In its 2009 Economic Blue Paper, the Chinese Academy of Social Sciences said the property industry would undergo a fresh round of xipai, or reshuffling of cards after a game, at a time of tightened monetary policy.
The report forecast that prices were unlikely to rebound next year in the absence of investors. In the deteriorating market environment, it expects growing numbers of default cases and distressed assets to put the property industry at greater risk.
Yang Gongxu, an analyst at property research institute E-House China, expects that prices will not bottom out until 2010. “Slow sales will continue next year,” he said.
But Nomura International (Hong Kong) senior property analyst Lee Wee Liat remains upbeat about the outlook of the market. “China has just entered phase one of the recovery, and the final phase could still be at least six months away,” he said.
In the first phase, transaction volumes stabilise and then pick up gradually while property prices continue to fall. Then, in phase two, transaction volume growth accelerates and property prices stabilise. By phase three, a full-blown recovery, transaction volumes and prices pick up concurrently.
Mr. Lee said the People’s Bank of China’s 108 basis point interest rate cut, coupled with earlier government measures, was equivalent to developers cutting prices of as much as 22 per cent.
A case in point in Beijing: Sino Ocean raked in about 800 million yuan (HK$903 million) last weekend from the sale of 700 units at Ocean Landscape. The units were sold out on the first day of launch.
The strong response came after the developer offered units at an average selling price of 11,000 yuan per square metre, about 20 per cent lower than transaction prices in the area.
“Bargain hunters will come out once prices adjust downward to attractive levels,” Mr. Lee said.
Meanwhile, the National Development and Reform Commission has indicated that part of the government’s plan to spend 900 billion yuan to provide affordable housing could entail the direct purchase of completed units from private developers rather than construction of new ones.
In Chongqing, the government spent about 3 billion yuan a few weeks ago to buy about 15,000 units in 49 projects.
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Surge in home sales quickly loses steam
Job losses and wage fears to curb mainland market
Sandy Li
12 December 2008
Nearly all mainland cities registered a sharp rise in residential sales last month, underpinned by recent interest rate cuts and other supportive measures by the government.
Yet there is little cause for celebration. Despite the increased sales and Beijing’s continuing bid to stimulate the economy, including the property sector, hopes for a speedy recovery in a housing market that has slumped since the middle of last year are low.
Market watchers have yet to reach a consensus as to when the sector will fully recover, but some believe that prices will bottom out only in 2010.
“We expect to see further property price cuts in the next couple of months to boost sales volumes. Towards year-end, developers will have rising cash outlays, as they need to settle taxes, interest payments and construction workers’ back pay before the Lunar New Year holiday,” said Jing Ulrich, chairman and managing director of JP Morgan.
With the domestic economy expected to weaken further, she said the threat of rising unemployment and income insecurity would be the main stumbling block for a recovery in the market.
Last month’s rebound in transactions was largely a result of discounting by developers and government policies beginning to take effect, Mrs. Ulrich said.
However, she pointed out that the increase in transaction volumes was off a relatively low base.
New housing sales in Shanghai were only 958,000 square metres in October, or about a quarter of the peak level in mid-2007.
“With more commercial banks recently offering discounts to their mortgage offerings, home buyers who had previously held off during September and October have returned to the market. This is a sign that confidence is returning,” she said.
Beijing’s support measures that took effect on November 1 also helped trigger a big jump in housing sales in almost all cities, including Shenzhen, Beijing and Shanghai.
Sales of new homes in Shenzhen, worst hit by earlier cooling measures, with prices tumbling up to 50 per cent since the second quarter of last year, shot up 90 per cent last month from the previous month to 6,435 units. Pre-sales in Beijing were up 64 per cent, and those in Shanghai jumped 36 per cent.
Prices in Beijing dropped between 15 and 20 per cent, and those in Shanghai fell between 10 and 15 per cent.
First-time homebuyers of flats smaller than 90 sqmetres will pay less down payment, 20 per cent instead of 30 per cent. Both first-time buyers and those upgrading will benefit from mortgage rates reduced to 70 per cent of base lending rates.
Other preferential measures are a cut in property deed tax to 1 per cent from 1.5 per cent and the abolition of the 0.05 per cent stamp duty and value-added tax for purchases.
Nevertheless, the sales growth has swiftly lost steam in the week to December 7. Beijing saw a 4.29 per cent drop week on week to 2,102 deals, while transactions in Shanghai fell 1.66 per cent to 3,966 during the same period. Shenzhen edged up 0.41 per cent to 1,559 units.
Adrian Ngan Wai-hung, an executive director at CCB International Securities, warned it was too early to say that a long-term recovery had set in, judging only by the past one or two months’ figures.
“Consolidation of the property market will continue,” he said, adding that it would take more than a year for the market to absorb excess inventories.
His remarks came after a top government-backed think-tank said on December 3 that the property market had entered a lengthy correction because genuine buyers remained on the sidelines in fear of more price declines.
In its 2009 Economic Blue Paper, the Chinese Academy of Social Sciences said the property industry would undergo a fresh round of xipai, or reshuffling of cards after a game, at a time of tightened monetary policy.
The report forecast that prices were unlikely to rebound next year in the absence of investors. In the deteriorating market environment, it expects growing numbers of default cases and distressed assets to put the property industry at greater risk.
Yang Gongxu, an analyst at property research institute E-House China, expects that prices will not bottom out until 2010. “Slow sales will continue next year,” he said.
But Nomura International (Hong Kong) senior property analyst Lee Wee Liat remains upbeat about the outlook of the market. “China has just entered phase one of the recovery, and the final phase could still be at least six months away,” he said.
In the first phase, transaction volumes stabilise and then pick up gradually while property prices continue to fall. Then, in phase two, transaction volume growth accelerates and property prices stabilise. By phase three, a full-blown recovery, transaction volumes and prices pick up concurrently.
Mr. Lee said the People’s Bank of China’s 108 basis point interest rate cut, coupled with earlier government measures, was equivalent to developers cutting prices of as much as 22 per cent.
A case in point in Beijing: Sino Ocean raked in about 800 million yuan (HK$903 million) last weekend from the sale of 700 units at Ocean Landscape. The units were sold out on the first day of launch.
The strong response came after the developer offered units at an average selling price of 11,000 yuan per square metre, about 20 per cent lower than transaction prices in the area.
“Bargain hunters will come out once prices adjust downward to attractive levels,” Mr. Lee said.
Meanwhile, the National Development and Reform Commission has indicated that part of the government’s plan to spend 900 billion yuan to provide affordable housing could entail the direct purchase of completed units from private developers rather than construction of new ones.
In Chongqing, the government spent about 3 billion yuan a few weeks ago to buy about 15,000 units in 49 projects.
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