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China’s real estate market to cut inventory amid price corrections
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CHINA’S real estate industry will focus on selling its mounting inventory amid price corrections and possible collapses of small property developers in the coming year, industry insiders said.
Wang Jianlin, China’s second-richest man and president of the Wanda Group, claimed the real estate industry had entered a state of “new normal,” with neither boom or bust in the next year.
In the January-November period of this year, China’s home sales value shrank 7.8 percent year on year, a huge contrast to the 26.3 percent surge in 2013 and the 10 percent increase in 2012, according to the National Bureau of Statistics.
New housing projects also fell 9 percent in the 11-month period from a year earlier.
“Overall, the industry is in overcapacity,” Wang said. “Some real estate businessmen have a fantasy that through monetary stimulation, the market may have a big boom in 2015. That idea is impractical.”
Wang, however, also dismissed concerns about a home market crash amid moderate leverage levels, strong government leadership and urbanization potential.
“Stop imagining that China’s property market will collapse. There is no possibility for that,” Wang said.
Chinese regulators have removed home purchase restrictions, cut the benchmark borrowing rates by 0.5 percentage points and asked banks to offer discount rates to home buyers.
In November, home sales reached a monthly high this year of 809.6 billion yuan (US$130.7 billion), up 93.8 billion yuan from October.
Last week’s Central Economic Work Conference, a meeting which sets the tone for next year’s policies, called for a prudent monetary policy that some analysts interpreted as more macro easing and beneficial to the housing market.
Cash shortfall
“The biggest pressure comes from the current inventory,” said Ren Zhiqiang, a well-known property developer.
Real estate companies may be pressured by cash shortage and debt burdens if the market remains at a low level, he added.
In its latest report, UBS maintains that the property sector downturn would pose the largest risk to China’s growth.
“While we do expect easing in property and lending policies to help stabilize sales, construction will likely decelerate further as developers digest inventory and slow down their capital expenditures,” the UBS report said.
Xia Haijun, president of Evergrande Group, believes Chinese property developers will see more sales next year amid stable home prices.
Xia said property developers would focus on reducing inventory in 2015.
UBS forecast new property development would drop by 10-15 percent in the next year.
Real estate investment growth softened to 11.9 percent year on year in the January-November period from the 19.8 percent increase in 2013.
“We believe this is good for inventory destocking and market health, especially for some oversupplied cities. We expect this trend to continue in December and next year,” Nomura said in a note.
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