Property Hunter Magazine October Issue 2014 | Page 74

/// International Property News

China Home Glut May Worsen as Developers Avoid Price Drop

Chinese Student Nabs Apartments With Harbour Bridge Views
Centaline. “They’re also worried that
excessive price adjustments may
reinforce the wait-and-see mood,
and therefore they’re choosing to
put out small amounts to test market
demand.”

including Nanjing, Tam said. The average
price at Shimao’s Junwangshu project
rose to 17,500 yuan ($2,850) per square
meter in July, from 17,100 yuan in June,
according to Sohu.com Inc.’s real estate
portal.

Developers are normally required
to begin selling within two weeks of
obtaining pre-sale permits, Zhang
said.

Cash Flow

The average new-home price in 100
cities tracked by SouFun Holdings
Ltd., owner of a real-estate website,
fell 0.8 percent in July from June, the
third consecutive month of declines.

The biggest immediate risk facing
China’s economy is about to get
worse.
A reluctance among some
developers to sell units at prices
lower than they could fetch just
months ago threatens to cause a
swelling in unsold properties. The
worsening glut would extend a slide
in construction that’s already put a
drag on the world’s second-largest
economy, and counter policy makers’
efforts to stimulate the real-estate
industry with loosened rules.
In Nanjing, eastern China, nine
housing projects originally planned
for sale in the first half of 2014 were
held for later this year, consulting
firm Everyday Network Co. says.
The number of homes added to
the market in July in 21 major cities
dropped 25 percent from June,
according to Centaline Group,
parent of China’s biggest real-estate
brokerage.
“The completed apartments will be
in the marketplace sooner or later,
and potential buyers will continue
to expect prices to fall,” said Hua
Changchun, China economist at
Nomura Holdings Inc. in Hong Kong.
“The property-market weakness
hasn’t changed, despite the policy
adjustments.”
July economic data due over the
next week, starting with tomorrow’s
trade numbers, will give a sense

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of how well growth is holding up
after accelerating to 7.5 percent
in the second quarter from a year
earlier. The statistics bureau releases
inflation figures Aug. 9, followed by
industrial production, fixed-asset
investment and retail sales on August
2013.

Credit Measure
The central bank reports lending
and money-supply figures by the
middle of August. China’s broadest
measure of new credit rose in June to
the highest level for the month since
2009, underscoring the role of debt
in supporting expansion. Homeprice data for cities are due from the
statistics bureau on Aug. 18, after
June prices fell from the previous
month in 55 of 70 cities tracked by
the government.
China’s home sales slumped 9.2
percent in the first half of this year
from a year earlier, following a fullyear 26.6 percent increase in 2013,
while new-property construction
plunged 16.4 percent. Developers
are responding with sales delays
and discounts as well as incentives
including no-down-payment
purchases and buyback guarantees.
Developers’ sales delays in the first
half were “very widespread” because
prospects were poor given weak
demand and tight credit conditions,
said Donald Yu, a Shenzhen-based
analyst at Guotai Junan Securities

Co. “Will the increased supply lead to
declines in prices in the second half?
That for sure will happen.”

Unsold Homes
The inventory of unsold new homes
in 20 large cities jumped to an
average of more than 23 months of
sales in June, according to Shenzhen
World Union Properties Consultancy
Inc. data compiled by Bloomberg
News. The floor space of unsold
new apartments nationwide on June
30 surged 25 percent from a year
earlier, government data show.
“Should future demand for property
be met increasingly from running
down these inventories rather than
from new supply, construction
activity would also slow significantly,”
Moody’s Investors Service said in a
report last week.
Developers seeking to sell yet-tobe-completed homes in China must
apply for local government approval
first. In July, the companies gained
permits to sell about 7 percent less
housing space than they received in
June, according to data on 40 cities
compiled by Centaline.

On Sidelines
“Developers have been unable to
build up adequate client interest
as buyers are still waiting on the
sidelines,” said Zhang Haiqing,
Shanghai-based research director at

Twenty-eight Chinese cities have
eased home-purchase curbs through
Aug. 4, according to SouFun. The
loosening hasn’t boosted sales,
as mortgage restrictions from the
central government remain in
place and buyers are still hesitant,
data provider China Real Estate
Information Corp. said last week.
“All of these will be helpful in
mitigating near-term pain, but the
combined impact will be unlikely
to reverse the downtrend,” Societe
Generale SA economists, led by
Yao Wei in Paris, wrote in a report
yesterday. “Recent trends appear to
indicate precisely how concerned
local governments are about the
current pace of deterioration of the
property sector and how grim the
outlook seems.”

‘Worst Times’
Construction is slowing and
inventories of unsold homes will
keep rising without an increase in
sales, Standard Chartered Plc said in
a report yesterday, citing its quarterly
survey conducted in June and July
of 30 developers, most of which
are small and unlisted. “Our survey
suggests that the worst times for
China’s real-estate sector are still
ahead,” economists Lan Shen and
Stephen Green wrote.
Shimao Property Holdings Ltd. (813),
a Hong Kong-based developer,
delayed sales in the first half in
cities with high inventories including
Ningbo and Hangzhou due to
weak demand and cut prices for
some homes, said Tammy Tam, a
spokeswom an.
The company also brought forward
sales at higher prices in some cities

Some developers are deciding to offer
only a portion of homes built instead
of entire projects. In central Wuhan,
developers since April have typically
offered less than 70 percent of homes
in projects with pre-sale approvals, while
some companies in Shanghai are selling
homes in small batches, according to
Centaline.
The delays mean lower cash-flow for
developers. Smaller ones face “massive”
debt-repayment pressures, as cash and
equivalents at 137 mainland China-listed
real estate companies, excluding four
of the largest, were sufficient to cover
just 74 percent of their short-term
liabilities in the first quarter, according to
Shenzhen World Union. That’s less than
half the average ratio of the other four,
including China Vanke Co. (2202)
Greentown China Holdings Ltd. (3900),
a developer based in the eastern city
of Hangzhou, said this week that firsthalf profit probably fell more than 65
percent from a year earlier, due in part
to “relatively lower gross profit margin”
on property sales. Its shares have
dropped 16 percent this week in Hong
Kong and Moody’s lowered its outlook
for the company’s credit rating to stable.

Stocks Gauge
A gauge of property stocks in the
Shanghai Composite Index fell 0.6
percent at 2:12 p.m. local time, headed
for the third straight daily decline.
“Property investment will remain the
biggest macroeconomic risk in the
second half,” even as a deceleration in
investment is less severe than in the
first half, said Zhu Haibin, chief China
economist at JPMorgan Chase & Co. in
Hong Kong. “It’s a quite natural response
from property developers to delay
sales and land purchases amid a weak
market, and this may affect investment
activity in the future.”

A Chinese buyer who only saw a
Kirribilli harbourfront apartment
block on Saturday morning said
he got a “fair” deal, the property
selling for $300,000 under reserve.
The Chatswood student bought
the two apartments at 2 Waruda
Street for $4.3 million on behalf
of his parents, who divide their
time between Australia and China.
During the auction, the student
tried to knock out all competition
with a $500,000 bid.
“I loved the feel of it,” the 22-yearold said. “I thought the price was
fair, we have other properties we
have bought in Sydney.
“The best part of this one is we can
see the new year’s fireworks from
both balconies.”
The 283-square-metre property –
with each apartment having two
double bedrooms, two car spaces
and direct views of the Harbour
Bridge – with waterfront parklands
was one of 408 Sydney auctions
listed to go under the hammer on
Saturday.
With 310 of the results in by
Saturday evening, the Domain
Group put the clearance rate at
79.1 per cent.
The new owners were one of five
registered parties in the crowd
of 45. They were up against two
other Chinese buyers and two
locals.
After one minute’s silence after
opening proceeding, Auction

Works auctioneer Lorenzo Giunti
took a first offer of $3.5 million.
Even though Mr Giunti was happy
to work with $100,000 increments,
the next bid by the new owner
of $500,000 took the price to $4
million.

with council and how to sort
out everything. It has great
redevelopment potential, with
some wanting to build a stunning
architectural home on the site
while others are keen on the rental
income stream.”

Three bids later, and after gruelling
negotiations with the vendors and
other registered parties, it was
called on the market. Despite the
auctioneer confirming $10,000
raises were sufficient, there were
no other takers.

He said the vendors ended up
paying $30,000 for the local
advertising during the five-week
campaign and an extra $10,000
worth of advertising in Chinese
circles.

Agents Steam Leung from Colliers
International and Michael Zhu
from House 18 World Square had
more than 50 groups inspect, with
10 taking out contracts.
Mr Zhu said that, out of the six
potential buyers from China, two
flew into Sydney to inspect, while
the others had local family or real
estate representatives inspect on
their behalf.
“Some Chinese buyers who flew
to Sydney to have a look were
disappointed because you can’t
see the Opera House, only see the
Harbour Bridge,” he said. “If you
saw both Sydney icons, they said
they would be prepared to pay
between $8 million to $10 million
easy.
“Most Chinese buyers don’t know
what to do with it, they prefer
something to move in straight
away.
“They like the location but don’t
know how to rebuild, negotiate

The rental return for both
apartments is $2100 a week. Mr
Zhu said it last traded in 2011 for
$3.15 million.
Another big result on the weekend
was the sale of a three-bedroom,
129-square-metre apartment at
405/24-26 Clarke Street, Crows
Nest, which went for $1.21 million,
$110,000 above reserve. There
were five registrations.
Auctioneer Rocky Bartolotto of
Property Auction Services advised
of two other huge results.
There was a crowd of more than
150 people at the auction of 3
Nowra Street at Campsie, which
sold for $932,000, $152,000
over reserve. There were 10
registrations for the four-bedroom
home sold by Francois Vassiliades
of LJ Hooker Campsie.
A three-bedroom unit at 9/49
Charlotte Street in Ashfield sold for
$725,000, which was $65,000 over
reserve, by Domenic Bucciarelli of
LJ Hooker Ashfield.

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