Chinese housing inventory climbs

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After continuous rounds of curbs, real estate inventories in various cities have been rising to records on the back of thin volume, although prices are still holding pretty well, according to Xinhua.

Unsold inventories in Beijing reached 107,000 units as of 20 July, according to the report, which would take almost 15 months to clear based on the transaction volume for the first half of the year, even without taking into account new supply coming on stream in the remainder of this year. In Shanghai, unsold inventories amounted to 53,948 units. In Guangzhou, unsold inventories reached 73,728 units. Inventories are also on the rise in second and third tier cities like Shijiazhuang, Zhengzhou and others.

Here comes the so-called “puzzle” as expressed in the report: why prices haven’t fallen much yet. In fact, it is hardly surprising even though corrections have become inevitable. Real estate investment is not a very liquid investment, and it can be really hard to sell even if you are eager, especially in a market with contracting volume. With inflation still out of control and limited investment opportunities, it seems reasonable to expect that very few would be yet be expecting prices to fall even though it is actually inevitable. As a result, I suspect that perhaps only a few are eager enough at this stage to sell-off their holdings.

Evidence of the imminent prospect of falls can be found in shares prices performance of property firms, which often lead the physical property markets at major turning point (although there is no conclusion on the exact length of the lead time). Chinese real estate sector stocks have been faring poorly for more than a year now, and Monday’s sell-off in the Chinese stockmarket (Shanghai and Shenzhen) was led by a massive sell-off in real estate sector stocks. So, as far as the real estate stocks are concerned, things are not looking good. And if that is a good indicator, the physical market is not looking good either.

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