Chinese Real Estate Market Cooling Off

A wait and see atmosphere has prevailed in the mainland Chinese housing market in the first quarter of 2014 with luxury residential sales falling in Beijing and Shanghai, …

A wait and see atmosphere has prevailed in the mainland Chinese housing market in the first quarter of 2014 with luxury residential sales falling in Beijing and Shanghai, according to the latest analysis report from Knight Frank.

It says that property sales fell in these two major cities due to credit tightening and it being the traditional low season of Chinese New Year. In Guangzhou, sales remained stable due to a slight loosening of the ‘restrictions on registration’ and an absence of new supply.

The report explains that since the Beijing government rolled out the Self-use Residential Property Policy at the end October 2013, home buyers in the city have adopted a wait and see attitude and a reluctance to purchase grew as more self use homes were released in the first quarter.

Sales fell around 20% quarter on quarter, however prices in the luxury home sector held up during the quarter, but price growth slowed in Beijing to just 0.6%, the smallest gain since the third quarter of 2012. Knight Frank says this indicates that the market has cooled under government controls.

In the rental sector, rent levels were flat, while the vacancy rate rose 2.3% to reach 13.6%. The report puts this down to weak demand from multinational corporations and China’s economic slowdown which have combined to give extra bargaining power to tenants and downward pressure on rents.
During the quarter, approval for pre-sale permits for luxury home projects started to ease. ‘This is set to drive an increase in market supply in the second quarter. Amid the launch of more self use residential projects, buyers are likely to take a wait and see approach. Hence, sales volume is expected to remain low, while prices should remain firm. With strong rigid demand in China’s capital city, housing prices are unlikely to fall,’ the report points out.

In Shanghai luxury home sales luxury home sales dropped to 33,026 square meters. Luxury home prices edged up 0.8% quarter on quarter driven by robust activity in some emerging luxury residential districts.
Knight Frank says that the Report on the Work of the Government released in March did not propose any new initiatives on property market regulation, but introduced the concept of ‘guidance by classification’.

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‘In first tier cities, more supply will come onto the market, while speculative demand will be suppressed by continual policies restricting purchase. In cities with significant stock levels, the supply of land and homes will be adjusted,’ the report says.

‘Existing regulatory measures will not be relaxed, but there will be limited impact on the luxury sector. Transaction volume is expected to rebound, while prices will continue to rise in the second quarter. Unless there is a substantial change to market fundamentals, Shanghai’s luxury residential sector is set to remain buoyant in terms of both supply and demand in the next 12 months,’ it adds.

In Guangzhou high interest rates arising from the tightening of monetary policies coupled with slower economic growth also created a wait and see sentiment in the city’s residential market in the first quarter.

‘Developers were prudent in their launching of projects and there was no new supply of luxury homes. Market activity focused on the absorption of inventory, resulting in a 2.4% decline in the availability of luxury homes in the sales market,’ the report points out.

‘The luxury residential market recorded better performance due to a slight loosening of the restrictions on registration, compared to the previous quarter when the market was suppressed by ad hoc administrative measures, such as price caps and restrictions on registration,’ it explains.

Overall luxury home sales and prices grew 5% and 3.5%, respectively in the city in the first quarter of the year while the leasing sector remained stable with rents essentially flat compared with the previous quarter.

It is expected that around 4,000 luxury homes will be completed in Guangzhou in 2014 and added to existing inventory, this is putting pressure on absorption, the report also says.

‘Since the government has not proposed any home price regulation targets, no further stringent policies are expected this year. Nevertheless, the affordable housing units built in recent years will gradually affect market outlook,’ it explains.

‘Coupled with market expectations on real estate registration and property taxes, prices are expected to grow less than 10% this year, significantly slower than in the previous two years,’ it adds.

This article was republished with permission from Property Wire.


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