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Chinese developers delay new home sales to counter price caps
February 27, 2017 / 9:37 AM / 9 months ago

Chinese developers delay new home sales to counter price caps

* Some developers delay new home sales

* They will speed up sales if market restrictions lifted

* Only big developers have the financial flexibility to hold out

* But even big developers can only hold out for limited time

By Clare Jim

HONG KONG, Feb 27 (Reuters) - Some Chinese developers are playing a game of cat-and-mouse with local governments by delaying the launch of new home sales in the hope of riding out tightening measures in the property market that have dampened prices in some major cities.

They hope that when authorities start to relax some restrictions, buyers will clamour to buy new homes and they can release more supply at higher prices.

Official data last week showed new home prices fell in January in 11 of 15 major cities from December levels. Prices in Beijing, Hangzhou and Chengdu were flat and Guangzhou was the only major city that posted a rise.

More broadly, average home prices in the 70 cities covered by the data rose just 0.2 percent from the month before, a slowdown in price growth for the fourth straight month.

Industry officials said the slowdown was largely the result of price caps imposed by different cities, rather than a sign of weakening demand. In fact, demand remains healthy, they said, pointing to a rise in prices for previously owned homes.

“We just wait and we won’t sell now,” said a Shanghai-based developer, referring to a development in the financial city. The official requested anonymity as the issue is sensitive.

Only big developers had the financial flexibility to delay projects, the officials said.

”We’re in no rush (to sell) but realistically we can’t wait too long; one year is not possible,“ this developer said. ”It’s a game with the government.

“For developers who have inventory pressure and want to build good relationships with the government in order to have better land access in the future, they may compromise. But some are willing to wait to seek higher profits.”

CAN‘T HOLD OUT “FOREVER”

A Shenzhen-based developer will delay the sale of higher-margin prime developments, such as sought-after apartments over metro stations, if the local government prolongs price caps, a senior executive of the company said. He declined to be identified because the matter is sensitive.

Most new home supply in major cities dropped in January. In the four top-tier cities of Beijing, Shanghai, Shenzhen and Guangzhou, supply fell between 42 percent and 79 percent, according to data provider CRIC.

Cities across China imposed restrictions on property markets last year after house prices shot higher, sparking concern an asset-price bubble was forming. The measures included home and land purchase restrictions.

At the end of last year, the official Xinhua news agency reported that China will strictly limit credit flowing into speculative purchases of property in 2017.

Local authorities also imposed price limits on sales, for example by capping a developer’s selling price at a certain percentage increase over a neighbouring development.

The restrictions are forcing more buyers into the secondary market to purchase pre-owned homes. Nine major cities recorded rises of between 0.2 percent and 1.6 percent in January from the month before for pre-owned home sales.

In the six cities where sales prices of pre-owned homes fell, three saw smaller corrections than for new homes.

“There is some purchase demand shifting to the secondary market,” said Andy Lee, vice president of realtor Centaline China.

“But developers can’t hold off new launches forever because they need the sales performance and capital. I think they will have to sell after the second or third quarter,” Lee said. That in turn will take demand away from the secondary market, he said.

Reporting by Clare Jim; Editing by Neil Fullick

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