Remember those spectacularly bearish leaked comments from the CEO of Vanke, China’s largest residential developer about China being built-out:
Based on construction launch of residential buildings, house production per 1000 people in China reached 35 in 2011. Sorted by tiers, the number for T1 is reasonable at around 10-15. The figures of T3 and T4 cities are consistent with the national number. T2 cities, on the other hand, show severe oversupply. By 2011, housing production per 1000 people reached 30 in T2 cities, excluding the construction of affordable houses. A persistently high figure such as this for T2 cities should cause alarm. A high ratio for T3 and T4 cities is also a warning sign, because these cities are not as capable of attracting investors as higher tier cities.
Overall, I believe that China has reached its capacity limit for new construction of residential projects. Only those coastal T3/T4 cities have potential for capacity expansion. We consider a housing price surge highly unlikely, especially in the cities with large housing inventory. Beijing and Shanghai have already been listed among the most expensive cities in the world in terms of the medium central city property prices.
Now, the President of the firm, Yu Liang, has gone public, from Bloomberg:
The “golden era” for China’s property market has passed, according to China Vanke Co. (000002), the nation’s biggest developer, which is shifting its focus to homes for owner occupiers rather than investors.
“The period in which everybody makes money out of property is gone…Vanke will take a cautiously optimistic approach to face the slowdown and target those buyers who need homes for self-use…cutting prices will not solve every problem unlike in the past because that won’t help sales of some high-end homes,” Yu said.
It’s not all bad news, according to the company secretary:
…“The market is far from its big turning point,” Vanke’s board secretary, Tan Huajie, said at the same briefing. “As the big brother in the industry, we are responsible to alert risks, but it doesn’t mean we are bearish on the property market.”
The growth in the real estate industry will slow and the phase where “whoever buys makes money” is gone, even as the nation’s accelerating urbanization still promises bright prospects for the market, Vanke Chairman Wang Shi told Caixin, a financial news company, in an interview last month.
A permanently high plateau then!
