Mild correction on China home prices for 2H2010

KUALA LUMPUR: China’s home prices will see mild corrections in 2H2010 for key cities such as Shanghai, Beijing, Guangzhou and Shenzhen, according to a Knight Frank China’s latest research report released on Aug 10.

“New home supply in Beijing in the second half of 2010 will be at a similar level to the first half of the year, but Shanghai is likely to experience oversupply,” said Knight Frank, who forecasts news home supply in Shanghai, Guangzhou and Shenzhen to grow by 77%, 49% and 46% respectively from the first half.

If home sales for the rest of the year remain low as it has been for the past three months, the number of unsold houses in Shanghai will rise to 90% between June and the end of the year, according to Knight Frank.

“Shanghai faces abundant supply this year, but 76% of this new supply is located in the outer ring. Therefore, home prices in the inner ring of Shanghai will remain resilient, while those in the outer ring will face greater downward pressure. The average home price in Shanghai is likely to dive a further 15% in the second half,” said Knight Frank.

Home inventories in Beijing, Guangzhou and Shenzhen will rise 30%, 35% and 40% respectively during the same period from June to end 2010, the Knight Frank’s report stated.

“Because of the relatively tight supply, Beijing will see a decline of less than 10% in the average home price in the second half of the year. In Guangzhou and Shenzhen, average home prices are expected to dip about 10%,” said Knight Frank.

Since mid-April, new policies were introduced by the State Council by preventing mortgages to two groups of potential homebuyers in cities that have experience rapid price increases.

The first group is those who already own two residences, while the second is cross-city homebuyers who cannot provide proof of local social security contributions or tax payments for at least one year.

Due to the tight lending policies and shrinking sales volumes, home prices began to edge down. Between end-April and end-June, the number of unsold homes in Beijing, Shanghai, Guangzhou and Shenzhen rose 8%, 13%, 24% and 3% respectively. The average daily sales of new homes in May and June plunged 70%, 65%, 20% and 52% respectively, compared with April.

“In July, monthly sales of new homes in Beijing and Shanghai rebounded by about 30% and 4% respectively compared with the previous month, while sales in Guangzhou and Shenzhen shrank by about 10% and 20% respectively,” Knight Frank reported.

The Knight Frank report highlighted that the central bank sees the European sovereign debt crisis having limited impact on China’s economy and hence will not be relaxing their policies since measures have “yet to achieve the government’s desired level of correction in the residential property market.”

As a result of the government policies, Knight Frank revealed that financially weak real estate developers are giving discounts to homebuyers, while larger ones are given price reductions to pre-empt further policy interventions from the authorities.