Spring hasn’t sprung for China’s chilly housing market and it may not for some time, a high level executive with the country’s largest real-estate developer said in rare remarks leaked online.
A glut of apartments and tightness in the credit market don’t bode well for property developers, said Mao Daqing, vice chairman of China Vanke.
A Chinese flag flies in front of a residential building developed by China Vanke Co., in the Fangshan district of Beijing. Bloomberg News
“Overall, China has reached its capacity limit for new construction of housing projects, only some coastal third- and fourth-tier cities have potential for capacity expansion,” Mr. Mao, who oversees the firm’s Beijing operations, said at a closed door meeting in Beijing on Wednesday (in Chinese). “As to whether there is room for home prices to rise, I don’t see any possibility for a rise in home prices, especially in cities with large housing inventory, unless the government pushes out another few trillion (in stimulus).”
China Vanke Beijing confirmed that Mr. Mao provided an analysis of the housing market in a private event, but added that there were no official transcripts.
Housing sales fell 7.7% in the first quarter this year, and remained sluggish in April, according to private sector estimates.
There is a glut of homes in China’s second-tier cities and some third- and fourth-tier cities due to oversupply of land, Mr. Mao said, highlighting cities like Tangshan, Shenyang and Wuxi. There is insufficient demand as there are not enough new migrants moving into these cities, and with the rich preferring to buy homes in major cities like Beijing.
Any developer who invests in Tangshan, an industrial city east of Beijing, is walking into a trap, he said.
China Vanke, which has a presence in more than 60 Chinese cities, earlier this weak reported a rare year-on-year slide in net profit in its first quarter results.
Mr. Mao also raised some red flags in tier-one cities such as Beijing and Shanghai as well. While demand from end-users is still strong in such cities, he said, land values — seen as a measure of a potential property bubble — are too high. He said land prices were accelerating faster than housing prices in the capital as a result of government efforts to containing prices of new homes there.
He went on to compare land values in Beijing with those in Japan and Hong Kong just before bubbles in those cities burst. Tokyo’s total land value in 1990, prior to the property bust there, was equal to 63.3% of U.S. GDP in 1990, he said. During the Hong Kong bubble in 1997, land values there reached 66.3% of U.S. GDP
In 2012, the total land value in Beijing was 61.6% of U.S. GDP, “which is a scary number”, Mr Mao said.
via Leaked Comments From Top Property Developer: China Is Built Out – China Real Time Report – WSJ.
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