China developers’ reluctance to cut prices likely to hamper growth

BEIJING — The biggest immediate risk facing China’s economy is about to get worse as a reluctance among some developers to cut prices is worsening a housing glut that threatens to extend a slide in construction that has already weighed on growth.

“Developers have been unable to build up adequate client interest as buyers are still waiting on the sidelines. They are also worried that excessive price adjustments may reinforce the wait-and-see mood,” said Mr Zhang Haiqing, research director at Centaline, China’s biggest real-estate brokerage.

In Nanjing, the capital of Jiangsu province in eastern China, sales for nine housing projects originally planned in the first half of this year have been postponed to later this year, consulting firm Everyday Network said.

The number of homes added to the market last month in 21 major Chinese cities dropped 25 per cent from June, said Centaline.

“The completed apartments will be in the marketplace sooner or later and potential buyers will continue to expect prices to fall. The property market weakness hasn’t changed, despite the policy adjustments,” said Nomura Holdings China economist Hua Changchun.

Developers’ sales delays in the first half were widespread because prospects were poor, given weak demand and tight credit conditions, said Guotai Junan Securities analyst Donald Yu.

“Will the increased supply lead to declines in prices in the second half? That, for sure, will happen,” he said.

Last month’s economic data, due in the coming days, starting with the trade numbers today, will give a sense of how well growth is holding up in Asia’s largest economy after rising to 7.5 per cent in the second quarter from a year earlier. Inflation data will be released tomorrow, followed by industrial production, fixed-asset investment and retail sales figures next Wednesday.

The central bank will report lending and money-supply figures by the middle of the month. China’s broadest measure of new credit rose in June to the highest level for the month since 2009, underscoring the role of debt in supporting expansion.

China’s home sales slumped 9.2 per cent in the first half of this year from a year earlier, following the full-year 26.6 per cent increase last year, while new property construction plunged 16.4 per cent.

Meanwhile, the inventory of unsold new homes in 20 large cities jumped to an average of more than 23 months of sales in June, Shenzhen World Union Properties Consultancy data compiled by Bloomberg showed. And the floor space of unsold new apartments nationwide on June 30 surged 25 per cent from a year earlier, government data showed.

“Should future demand for property be met increasingly from running down these inventories rather than from new supply, construction activity would also slow significantly,” Moody’s Investors Service warned.

Construction is slowing, while the inventory of unsold homes will keep rising without an increase in sales, Standard Chartered economists said in a report on Wednesday, citing its quarterly survey of 30 developers conducted in June and last month.

“Our survey suggests that the worst times for China’s real estate sector are still ahead,” they said.

The average new home price in 100 cities tracked by real estate portal SouFun Holdings fell 0.8 per cent last month from June, the third consecutive month of declines.

Twenty-eight cities have eased home-purchase curbs through Monday, said SouFun. The loosening has not boosted sales, as mortgage restrictions from the central government remain in place and buyers are still hesitant, data provider China Real Estate Information Corp said last week. BLOOMBERG