Supply pressures to drive down China home prices

BEIJING — Home prices in China will fall this year as developers cut them to meet sales targets amid a cooling property market, ratings agency Standard & Poor’s said in a research report published yesterday.

Home prices in the world’s second-largest economy will decline 5 per cent this year, compared with an 11.5 per cent gain last year, the report said. Sales volume will improve in the second half of the year and rise 10 per cent for the full year as the discounts attract buyers sitting on the fence, it added.

“Prices are likely to continue to slide because of the large inventory in some markets. Many small unrated developers will feel the heat the most because their sales and financing capacities are substantially weaker than their larger peers’. Some lower-tier cities with limited demand and abundant supply could see deeper downward price adjustments,” the report said.

The pressure on Chinese developers was underscored by the collapse in March of Zhejiang Xingrun Real Estate, which owed 3.5 billion yuan (S$700 million) to creditors that included more than 15 banks.

After four years of government restrictions to cool the housing market, home sales and property construction are sliding and have become a drag on the economy, which recorded its slowest growth in six quarters in the first three months of the year.

There are signs that the government is taking action to limit the real estate slowdown. The central bank last month called on the country’s biggest lenders to accelerate the granting of home mortgages, while Southern Weekly reported that the Housing Ministry has allowed some cities to adjust home-buying curbs as they see fit.

Home prices in China fell 0.3 per cent last month from April, the first month-on-month drop since June 2012, said SouFun Holdings, the country’s biggest real estate website owner.

Developers set a target 20 per cent higher than their average 2013 sales but achieved only 27 per cent of it in the first four months of the year, said S&P, which tracks 27 developers.

“We expect most large national players to be able to weather the market correction ahead. Among the rated developers, companies with more aggressive debt-funded growth appetite or weak execution ability will face downgrade risks,” it said.

The S&P report comes after rival ratings agency Moody’s Investors Service last month revised its credit outlook for Chinese developers to negative from stable. BLOOMBERG