Chinese property sales and credit softens in May

Thursday 12 June 2014

Cross posted from Investing in Chinese Stocks:

Property Developer Sales Tick Up in May, But Well Off Target

Thirty listed property developers sold ￥102 billion worth of property in May, a 5% uptick from April. However, the five-month cumulative sales for these 30 firms reached only ￥486 billion, a mere 29% of their 2014 goals.

April/May is the first big sales season and many firms like to go into the second half of the year with the wind at their back.

This year, they will increasingly rely on hope ahead of the upcoming September/October selling season if they can’t make sales during the summer. Some developer’s sales are down more than 50% yoy.Only Vanke and Evergrande have reached more than 40% of their sales target. Of the 30 firms tracked, 17 are below 30%. This number may overstate the health of the market: some sales were carried over from 2013 and hit the books in 2014.

This isn’t good for the big developers, but this is very bad for the small and deeply indebted developers who will have to compete with them for sales later this year.

Is it tight credit or weak sales?

In Wuhan, mortgage approval has been shortened to 2 to 7 days, but some people who applied for loans at the start of the year still haven’t received them. Interest rates are also 5-10% above the benchmark, in some cases 15%.

The call to lend to home buyers made by the central bank last month is only having limited impact. Competition with Internet banking and low profits on mortgages are two of the reasons cited for the tight credit conditions.

However, weak real estate is another factor. Banks are worried about falling home prices. Survey data cited in the article: banks prefer to lend in first- and second-tier cities, at low interest rates and in large amounts. In other words, the borrowers with better credit.

A closer look at credit is warranted – it is a mixed picture in May. Money supply was up, but Total social financing (TSF) five month cumulative through May 2015 is down 6% from 2013 Jan-May. For May alone, the year-on-year increase was 18.6%.

This increase is clearly seen in this monthly chart. Last year’s cash crunch was kicking off in May and TSF for the May-July period was very low, which makes for easy yoy comparisons going forward.

Sub-categories declined nearly across the board; in essence the spike in bank loans rescued TSF from coming close to last May’s total. Entrusted loans was the only other increased flow. Bulls can look to May loans as evidence of a pickup; bears can look to everything else and write off a possible blip in loans.