…...but the Chinese authorities are increasing the dose. That is in July, house prices rose 4.3% on a year ago, but only 0.1% on June; and, while focused on the month-by-month comparison, 14 cities from a total of 70 large and middle sized conurbations dipped by between 0.1 and 0.3% In July, while 15 were flat. What’s more it is reported today that the Housing Ministry will, by the end of this week, announce a new list of at least 30 second and third tier cities which must implement home purchase restrictions too.
But it is a slow down not a stop and must be viewed in the context of a Chinese property market in which investment, overall, was up 34% at Yuan 3.2 trillion in the first seven months of the year with sales running 26% to the good (these were also better than the H1 scores where the comparative percentage growth was 33% and 24% respectively). See also the individual company performances below
- Detail
On Thursday, the NBS published the official residential price league table for 70 cities in July (albeit we had already had a sneak preview from Soufun in the first week of August). This showed that new house prices were 4.3% higher year on year but only 0.1% ahead July on June (Soufun said 6.8 and 0.2%). Within these tallies only one city was down year on year (Sanya) with one flat (Hangzhou); albeit month on month, 15 were flat (including Beijing, Shanghai, Xiamen and Guangzhou), while 14 dipped by between 0.1 and 0.3% (including Chongqing, Hangzhou, Nanjing and Ningbo).
More revealing, perhaps, is the seven month evolution which definitely shows that the Government medicine to cure house price inflation is working; albeit there were divergent views in the media. And, okay in some peripheral cities there may have been have been some advance purchases made ahead of an inevitable extension of restrictions. For example, the July winner was Urumqi with an 8.9% year on year gain, supported by Lanzhou, Shijiazhuang and Dandong all up by between 7.7 and 8.6% on the same basis.
NEW HOUSE PRICES IN JULY (% change)
In month and On year
January 0.8 and 5.9
February 0.4 and 5.7
March 0.3 and 5.2
April 0.3 and 4.3
May 0.2 and 4.1
June 0.1 and 4.2
July 0.1 and 4.3
China’s housing transactions in July also fell - by a massive 30% - from June to Yuan 348.7 billion, said the NBS on 9 August. But this may have been a one-off trend; and we will need a longer time series here.
In terms of opinion, Mizuho Securities said “the data is encouraging as we see prices in big cities such as Beijing and Shanghai have stopped rising. The Government is determined to cool down the prices in the short term”.
“This is the beginning of a downward trend in property prices in China, with more second and third tier cities introducing purchase restriction policies” added Daiwa. “Price declines will occur in more and more cities in the coming months”.
“One thing for sure is that the Government has a strong determination to control the property market” said Yu Liang, President of China Vanke (on 9 August).
It is also reported that the Housing Ministry is, by the end of this week, likely to announce a list of at least 30 second and third tier cities which must implement home purchase restrictions.
The property sub-index with the Shanghai Composite (SCI) has fallen 3.5% in August (through 19/08) and 12.1% in the year to date; which compares with the SCI at -6.2% and -9.7% respectively.
- Agile does as it is
In other news, Agile Property said its H1 sales rose 65.5% year-on-year to Yuan 11.72 billion (1.42 million square metres) and that it sees no need to lower property prices despite tightened housing curbs. Note, however that the Company generated 39% of sales at its Clear Water Bay project in Sanya in Hainan Province; and that normalised net profit for the period almost doubled to Yuan 2.6 billion, which meant adjusted profitability rose from 18.4 to 22.0%.
"Around 25% of our current property projects are located in cities with home buying restrictions, and despite wide market speculation that Beijing would extend the restrictions to more places, we don’t see the need to cut prices at this point” said Chairman Chen Zhuo Lin. He also cited those cities which, for Agile, had “restricted” projects including Guangzhou, Foshan, Chongqing and Nanjing. However, Chen added that Guangzhou contributed Yuan 3.6 billion (31%) to the developer’s total H1 sales, meaning actual demand remains strong. In total, Agile has 70 projects in 26 cities.
Chen did admit the housing curbs have had a big impact on the real estate market, but he also said that Agile Property had been able to dodge some of the impact by slowing down land purchases. For example, it spent some Yuan 1.5 billion on land plots in H1, compared with Yuan 10 billion in the same period last year. The Chairman also said that they would put forward more projects in H2 and plans to acquire land plots in Yunnan, Xi’an and Guangzhou. In addition, Yunnan would be another key market for Agile, where it expects to build a project similar to Clear Water Bay.
- Gemdale, Shui On and Keppel
In contrast, Gemdale said it H1 net income fell 61% from a year ago to Yuan 478.3 million as sales revenue dropped 41% to Yuan 5.16 billion (and with it margins from 14.0 to 9.3%). However, timing issues were the problem and the majority of its projects are scheduled to be completed in Q4. Indeed, as of the end of June, the Company had ‘transaction area’ of 2.42 million square metres on the go which represents Yuan 30 billion in transaction value – none of which was recognised in H1.Gemdale also said that, with a weather eye on Government policy, it will expand investment in the second and third tier cities this year.
Similarly, Shui On Land, the Shanghai-based developer controlled by Hong Kong billionaire Vincent Lo, said first half profit fell 50% after it completed fewer properties. Net income in the six months to 30 June dropped to Yuan 784 million ($123 million) on revenue which slumped from Yuan 3.12 billion to Yuan 1.79 billion. This led to net margins declining from 50.0% to a still remarkable 43.8%. Going forward, the Company’s focus is high quality real estate residential and commercial projects - which target a growing middle class – and it plans to spend Yuan 8 billion ($1.3 billion) to develop Hongqiao Tiandi, an office and restaurant precinct in Shanghai. Shui On is also planning to hive off its property leasing business in China by way of a Hong Kong IPO.
Finally, Singapore’s Keppel Land has secured a 21.5 hectare lakefront residential site in China for Yuan 1.937 billion ($303 million). It is located in Wuxi in Jiangsu Province and will be the fourth project for Keppel in the City.
“A dose of adversity is often as needful as a dose of medicine” – Anon.
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