China’s housing market starts to cool with high vacancy rate posing biggest risk
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With more failed land auctions and rising inventories of new commodity housing, the real estate market in China is showing signs of cooling. Although real estate developers have finally begin to embark on promotions and obviously lose appetite for new land, analysts predict the turning point for the continuously hot market over the past decade has not yet come.

The unsold housing stock in 100 Chinese cities for the first time has scaled up in 45 months, with oversupply beginning to become a trend, according to a report by E-house China R&D Institute, a property research agency.

Amid a slowing economy exacerbated by trade frictions with the US, the decline is widely seen as carrying financial risks, and has given rise to rumors about home purchase limitations being lifted soon.

China’s official Xinhua News Agency refuted similar rumors in a recent editorial. The article called on property market regulations not to be given up halfway, or all the previous efforts would be wasted. Before the setting up of a long-term mechanism, the regulations are gradually changing from merely administrative orders to instructive policies. The regulations put in place could not be lifted now to prevent a surge in home prices again, the Xinhua commentary made it clear.

Ni Pengfeng, the director of the Urban Competitiveness Project of Chinese Academy of Social Sciences, analyzed reasons behind the market softening in an interview with ifeng.com, a Chinese news portal, indicating the “general market sentiment has changed, with a wait-and-see attitude common to see among developers.

Ni observed the fast-changing financing and investment environment, gloomy macro-economic outlook and low expectations had all played a role in turning down the heat. He referred to the third quarter reports of many developers including China Vanke, pointing out the enthusiasm to acquire new land among major players in the market had dampened.

Meanwhile, Ni doesn’t agree the turning point for China’s housing market has arrived. “The urbanization process is unfinished with 200 million people still on their way to cities, which means the housing demand remains strong,” he said, alerting that under the circumstances, some local governments were still relying on land sales for financing and so speculating on home prices.

While housing demand in top-tier cities remains robust, lower-tier cities which embraced the bull market over the past two years may face more challenges as market sentiments go down. Ni warned a new round of inventory backlog may form in the markets and the imbalance between hot cities and more obscure ones may be further expanded.

Recently, the unexpectedly high vacancy rate haunting China’s urban housing has been disclosed, which is believed to pose significant risks to the country’s housing market and financial stability.

A soon-to-be-published research would show roughly 22 percent of China’s urban homes are standing empty, according to Gan Li, a professor of Chengdu’s Southwestern University of Finance and Economics, who leads the nationwide study, Bloomberg reported. Gan told Bloomberg the figure added up to be more than 50 million apartments and houses with unsold stock of property developers not included.

It’s a common concern that owners of the unoccupied homes would rush to sell as the property market starts to falter, leading prices to a ‘deadly’ spiral dive.

Ni agreed the new finding may change the whole picture. “At present, in top-tier cities in China, short supply is a result of real housing demand, plus investment and speculation. If the investment and speculation-orientated demand was deducted, the situation would be hard to ascertain.”   

 


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