Recovery Signs in China's Property Sector

Macquarie has called the bottom of the Chinese residential property market in terms of sales volumes. In a report, the Australian bank says that the recent sales data were better than expected and that a bottom in prices and construction levels is set to follow. Volume levels in the cities that Macquarie tracks were up by as much as 50% year-on-year in January and February. In month-on-month growth, Guangzhou, Chengdu and Tianjin showed the greatest improvements in February. Shanghai and Hangzhou were excluded from the recovery, however—the rationale being that cities in the Yangtze and Pearl River deltas entered the downturn later than their peers. A lot of the demand came from people upgrading their homes to bigger units, but was also the result of the relaxation in mortgage policy relating to homeowners buying a second house. In fact, the number of mortgages was up by 30% month-on-month in January, taking it to the highest level in 16 months. Though Macquarie is non-committal on whether the data should be taken as a signal to buy into Chinese property stocks, saying that it "might be, for bold investors". The bank suggests that investors keep in mind that Chinese developers are highly geared and that the sustained exposure to a weak market will have already affected the weaker companies. "We eagerly await the upcoming reporting season to closely examine the balance sheets and to see how much margins have been eroded by the recent pick-up in volumes," it says. An increase in volumes is one thing, but prices are quite another. The latest figures from the National Development and Reform Commission (NDRC) show that across the country, property prices were down by 1.2% year-on-year and by 0.2% month-on-month in February. "The 1.2% year-on-year decline is higher than the year-on-year decline recorded in January 2009, suggesting that the decrease in property prices has accelerated," says a Citi research report. The continued reduction in prices is due to developers off-loading their inventories at the end of last year. Prices in southern cities were hit harder than in cities in the north. For example, in Shenzhen, prices were down by 15.7% year-on-year, while in Xiamen and Guangzhou they were down by 4.4%. This compares with declines of 1.7% in Tianjin and 1.8% in Jinan. Shanghai generally bucks the national trend with diminishing volume and rising prices. According to Colliers International, transaction volumes dipped by 57% in January, after significant boosts in November and December. At the same time, prices were up—on average by 15% quarter-on-quarter in January to around Rmb10,000 per square meter. "Despite the fact that some pent-up demand was released by the encouraging policies, most home buyers still maintain a wait-and-see attitude. Thus, it has yet to [be concluded] whether the residential property market has stabilised," says Hingyin Lee, Colliers' director of research and advisory for east China. One potential stimulatory measure is the possibility that the Shanghai municipal government will reintroduce the 'blue stamp' residency permit to out-of-towners willing to buy property in the city. The blue stamp permit is given to around 10,000 people annually, typically professionals who can contribute to local development. Lee at Colliers is positive on this measure, but with a caveat: "The effect on boosting housing demand would depend on the price threshold set by the municipal government." The lower the threshold, the greater the subsequent demand. What is clear, though, is that Shanghai needs some stimulus measure to put it in synch with the rest of the country, so that it recovers at the same time.

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