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March 10, 2014

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Home » Business » Benchmark

Home sales, not prices, flag

By Cherry Cao | March 10, 2014, Monday | Print Edition

Tepid sentiment prevailed among homebuyers in Shanghai in the first two months of this year, heralding an expected retreat in new home sales in 2014. However, the upward spiral of prices is forecast to continue, flying in the face of government measures to reverse it, industry analysts predict.

Purchases of new residential properties, excluding government-subsidized affordable housing, dropped 30 percent in January from a year earlier to 709,000 square meters, according to Century 21 China Real Estate, one of the city’s largest estate chains.

In February, with most public attention focused on the annual weeklong Spring Festival holiday, sluggish sales of only 418,700 square meters were recorded. That was a 24-month low and a 23 percent decrease from a year ago.

“New tightening measures introduced late last year in a couple of Chinese cities, including Shanghai, are likely to weaken market sentiment and result in a decline in sales volume, both in the mass and high-end markets,” said Joe Zhou, head of research for Jones Lang LaSalle Shanghai.

“However, the upward trend in sales prices is not likely to be reversed, although price growth is expected to be limited in 2014.”

In Shanghai last November, the government stepped harder on the brakes by announcing more stringent mortgage requirements for second-home buyers and stricter purchasing qualifications for residents who have moved here from other cities and towns.

The minimum down payment for second-home buyers was raised to 70 percent from the previous 60 percent, while non-locals must prove they have lived in the city for 24 of the last 36 months to buy a house. That altered the previous rule requiring proof of residency for 12 months of the last 24 months.

Indeed, the new restrictions moderated buying activity toward the end of the year, with new home sales easing to 1.28 million square meters in November and to 984,000 square meters in December. That compared with the previous high of more than 1.4 million square meters in both September and October, according to Shanghai Uwin Real Estate Information Services Co.

“The tail-end of 2013 was very much what the government has been looking to engineer for a number of years, namely moderate price growth and healthy transaction volumes,” said James Macdonald, head of research for Savills China. “Should this situation continue into the first half of 2014, the government is unlikely to implement any significant new policy reforms that could upset the status quo.”

He added, “That said, the government will take this opportunity to investigate policies that can be implemented over the next five-year period to make the regulatory framework more robust and well rounded, such as a comprehensive and connected property registry and a property tax to support local government spending on local services.”

Still, rising prices remain a vexation for those wanting to buy family homes, especially first-time buyers.

“The slowdown in residential new starts in 2013 will lead to a decrease in new supply in 2014, even as demand remains robust,” noted Carlby Xie, director of research for Colliers China. “In addition, a price rally in Shanghai’s land sales in 2013 is expected to lead developers to increase housing prices during the pre-sale stage in 2014.”

At the end of 2013, new starts of properties in all categories showed year-on-year declines for 22 consecutive months in Shanghai, the local statistics bureau said in a year-end review posted on its website in late January.

New residential properties completed last year totaled 14.17 million square meters, a drop of nearly 12 percent from 2012, the bureau said.

By contrast, some 20.16 million square meters of new residential properties were sold across the city last year, an increase of 26.6 percent from 2012, the bureau said. They sold at an average price of 16,192 yuan (US$2,654) per square meter, compared with 13,870 yuan in 2012.

Real estate developers have been showing strong appetite to expand their land reserves.

About 8.6 million square meters of land parcels, excluding those designated for public use or affordable housing, were sold last year in the city, valued at a five-year high of more than 206 billion yuan, according to an earlier report released by Century 21 China Real Estate.

“We expect the strong momentum to extend for another six months, with property curbs remaining in place in the first half of 2014 to prevent rapid price growth,” said Jenny Wu, director of residential sales for East China at property services firm DTZ.

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