It means that growth quarter on quarter is slower than in the first two quarter of 2011, according to a new index put together by international property consultancy Knight Frank and China-based property consultancy Holdways.
They have formed an alliance to provide much needed accurate statistics on China's property market. China has the world’s largest housing market, and investors, both foreign and local, have immense interest in this thriving sector.
In 2010, an estimated 9.3 million new homes were sold across mainland China. The real estate sector accounted for 23.8% of China’s RMB24.1 trillion fixed asset investments last year.
Meanwhile, foreign direct investment (FDI) in China’s real estate sector amounted to US$24.0 billion in 2010, accounting for 22.7% of the country’s total inbound FDI.
Despite the importance of this sector, there is much misunderstanding about China’s property
market, due to a lack of consistent statistics, Knight Frank points out. For example, inter city price comparison is not always worthwhile, as some cities mix the data of subsidised housing with private housing statistics, while others do not. The fact that cities expand their boundaries and include additional suburbs in their jurisdictions at different rates has made the issue even more complex.
In the third quarter of 2011, total primary residential transacted area in 20 major cities fell by 17.3% year on year and 1.6% quarter on quarter. Due to decreased sales, inventory levels increased substantially by 28.8% year on year. Price growth was suppressed in such a quiet home sales market. Adjusted new home prices edged up 1.1% quarter on quarter.
The report points out that the government continued to regulate the property market by working out a list of second and third tier cities where purchase restrictions need to be implemented, suspending the businesses of some real estate trusts, tightening bank credit, prohibiting central government’s funds from flowing into the real estate sector and restricting foreign funds to enter the property market.
Potential buyers adopted a wait and see attitude amid tightening policies and thus sales in the third quarter were unsatisfactory.
Among 20 major cities, Shanghai had the highest urban area primary residential prices, while Beijing had the highest city wide prices, followed by Shanghai and Shenzhen.
The report also points out that sluggish sales and high inventory levels further increased the funding pressure of developers, which caused more developments to cut prices in promoting sales.
‘Considering the policy risks and market situation, in the fourth quarter, we believe the funding pressure would force more developers to reduce prices of their developments to retrieve cash and avoid insufficient cash flow or a break in capital chains,’ says the report.
‘Meanwhile, since the growth of home prices has started to become controllable, we believe the government is unlikely to launch further new tightening policies, though current policies are not expected to be relaxed in 2012,’ it explains.
‘We expect property prices would only slightly adjust next year, while local governments could fine tune their policies based on the cities’ individual situations. Considering the policy risks and market situation, in the fourth quarter, we believe the funding pressure would force more developers to reduce prices of their developments to retrieve cash and avoid insufficient cash flow or a break in capital chains.
‘Also, we believe the government is unlikely to launch further new tightening policies, though current policies are not expected to be relaxed in 2012 and property prices would only slightly adjust next year,’ it adds.
