An interesting note from HSBC makes the point that I’ve argued recently that the Chinese property market appears to have passed some critical tipping point in the destruction of speculative psychology. I am expecting a slow recovery at best. L-shaped is the base case.
July sales–a breather, as expected. According to CRIC’s preliminary sales data, our covered companies recorded 32% m-o-m and 42% y-o-y declines on average in July. SOEs generally outperformed, including CR Land (+22% y-o-y),COLI (-18% y-o-y)and Sino-Ocean (-13% y-o-y).CIFI (-23% y-o-y) saw a relatively mild decline while most other POEs disappointed, like Times (-65%y-o-y) and KWG (-85% y-o-y).
We are not surprised about the m-o-m decline in July sales as it is a traditional off-season period and is partly affected by rising COVID-19 cases compared with June. China’s Politburo meeting on 28 July emphasised the stabilisation of the housing market. We expect more details to surface on the real estate fund and potential shanty town redevelopment,which were reported by REDD and FT recently. We maintain our view that more powerful policy stimulus is needed and expect a gradual sales improvement over the next few months.
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Reality check in the eye of the storm-Zhengzhou is plagued by unfinished projects. We visited six projects in Zhengzhou last week and were surprised to find that the home purchase voucher, which we view as a meaningful policy, has not yet been implemented. The on-the-ground mood is pessimistic where the easing policies have not yet been sufficient to drive a turnaround post the mid-2021 flood and resurgence in COVID-19cases. The only positive is that the high-end market such as Zhengdong New District remains relatively more resilient due to its prime location.
Zhengzhou has been drawing the market’s attention since its shantytown news in June, followed by an escalating mortgage boycott. We visited six projects in Zhengzhou to have a reality check on its housing market. Key observations and feedback from site visits paint a discouraging real estate backdrop in Zhengzhou. Our finding is that the wide implementation of home purchase voucher is still absent and home buyers’ sentiment remains depressed in spite of the relaxation on home purchase restrictions and the mortgage rate cut. In fact, stalled projects remain widespread and unresolved issues and overhangs explain why gradual easing measures have failed to revive market sentiment.
We visited six projects located in two districts, including Huiji District and Zhengdong New District. Huiji District is a typical mass market residential area with sufficient new home supply and ASP ranging from RMB10,000-20,000/sqm, while Zhengdong New District has the highest ASP at RMB30,000-45,000/sqm due to rapid growth in its population and commercial business over the last decade. While prospective home buyers have generally delayed home purchase decisions, the luxury market seems relatively more resilient given limited new launches compared with the mass market. We also found that projects with lower ASP have higher sell-through rate, such as Majestic Mansion developed by CRL, suggesting that home buyers have become more price sensitive.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
