China’s property oversupply worsening

11th March 2015, HKT 12:45pm

A new survey released today in Chinese by a collaboration of China’s Netease and E-house China R&D Institute shows that Chinese cities real-estate inventory has been expanding rapidly since 2011, despite calls to curb over construction and support fragile property prices. This indicates it will still be some time before property prices can turnaround, particularly for lower tier cities. The only bright spot was Shenzhen, which is alone amongst the larger cities in being effective in decreasing its housing stock.

The survey focuses on China’s 35 key cities, combining data from the National Bureau of Statistics and E-house China R&DDespite concern over declining real-estate prices, China’s property stock expansion is now 1.5 times the amount four years ago, up 26.1% year on year, reaching 621 million sq.m by the end of 2014.

The problem of oversupply is most acute in China’s second tier cities. Tianjin tops the list with total real-estate inventory of 21.92 million sq.m by the end of January 2015, an increase of 11.5% year on year. Shenyang, Xi’an and Changsha are close behind with total housing stock of 21.12 million sq.m, 20.20 million sq.m, and 19.21 million sq.m, posting year on year increases of 22%, 12.7% and 36.7% respectively.

China’s tier one cities are also experiencing continued property oversupply, with stock roughly half that of the second tier cities topping the list. Whilst Shanghai was placed 6th overall, with 12.83 million sq.m outstanding,and a year on year increase of 29.6%, of greater concern is 9th placed Beijing, which posted a year on year increase of 52.6%, reaching 10.73 million sq.m. Amongst the tier one cities, only Shenzhen posted an annual decline, 26.7%, placing it at 25th with 4.24 million sq.m of stock.

Compounding the problem of oversupply is the sharp slowdown in China’s property market, experiencing a double whammy of declining property sales and falling prices, making it harder for Chinese cities to offload excess stock onto the market. The survey includes the ratio of inventory to sales area volumes, indicating which cities are best and worst positioned to ‘digest’ their mounting stock.

Again Tianjin looks especially weak at 3rd place, where stock outweighs sales by a ratio of 27.4, increasing 47.3% year on year. The other large second tier cities fill the top half of the chart, with Xi’an, Shenyang and Changsha having stock to sales ratios of 24.7, 19.1 and 14.3 respectively, all widening year on year.

China’s tier one cities fair slightly better, with stock to sales ratios of around 10, however for Shanghai, Guangzhou and Beijing, their stock to sales ratios are widening quickly, by 53.1%, 38.8% and 44.1% respectively. Again amongst the first tier cities, only Shenzhen is managing to reduce its property oversupply problem, posting an annual decline of 21.8% for its stock to sales ratio.

This data could support previous reports of local governments resorting to more land sales and property development, in order to off-set falling tax revenues as economic growth begins to slow.

One positive outtake from the survey: Whilst its the poorer cities which are experiencing the quickest rates of inventory buildup, at least it might make property more affordable for the local population, reducing slightly their pressure to make it on the property ladder.

(First to be published in English. Article not to be reproduced without permission).



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