Date
18 October 2017

Housing slowdown isn’t a bad thing for Hangzhou

Has the bell tolled for the realty market in Hangzhou?

The city, the capital of the eastern province of Zhejiang, is hardly regarded as a top notch urban center in China. But for the realty sector, it’s a key barometer thanks to the continuous flow of investors — mainly rich factory owners from elsewhere in the province — engaging in speculating housing bets in this mid-sized city in recent years. In the heydays during 2011-2013, Hangzhou home prices constantly ranked among the nation’s top 5. But that is all now a thing of the past.

Apparently the Hangzhou housing market is now in hibernation — merely two transactions were made during the lunar New Year break this year, according to the city’s housing administration bureau. Traditionally, major public holidays like the Lunar New Year or National Day are the peak weeks for home sales.

While people are wondering what went wrong with the city’s realty market, some radical, unseen-in-years price cuts have exacerbated the jitters.

Last Tuesday, a medium-sized developer lowered the average unit price of a housing estate in the city to 15,800 yuan (US$2,580) per square meter (sqm) from 19,000 yuan per sqm, rattling the city’s realty sector as the price was cut to the level that prevailed more than two years ago.

The move was followed by an even more aggressive cut by another developer the next day. The competitor slashed the home price of a neighboring project by almost a third to 11,800 yuan per sqm from 17,200 yuan per sqm. Initially, local media tried to downplay the impact, saying the two developers were relatively small and that their moves represented isolated cases.

Yet a price cut list has been circulating in the city for a while and some big names are also on board. The unit price of a large residential project built by realty titan Vanke (200002.CN, 000002.CN) in the city was cut to 13,000 yuan per sqm from 16,800 yuan per sqm, and the price of a Poly Real Estate (600048.CN) development reduced by 3,500 yuan to 12,800 yuan per sqm, the 21 Century Business Herald reported.

Now, developers, big and small, fear the price cut may spread like a contagion and that all have to follow suit. Mainland newspapers have been running headlines since last week that angry homeowners in Hangzhou who made their purchases prior to the price cut smashed a developer’s home sales center after their request for reimbursement was rejected.

Figures from the National Bureau of Statistics (NBS) further confirmed the bleakness — Hangzhou was among only five out of 70 NBS-monitored cities that saw average home price drops on a month-on-month basis in January.

Analysts blame the city’s huge inventory of homes for the depression.

Data from an enquiry platform run by Hangzhou’s housing administration bureau reveal that new home stockpile there has built up to 113,000 units with a total floor area of 10 million sqm as of this Monday. Based on the average monthly sales of 7,062 units during the fourth quarter last year, the figure means that even without any new supply from now on, the market will probably need 16 months for the destocking process.

And, as the Herald estimates, if on-sale second-hand homes are also included, the aggregate number can be well over 220,000 units and it will take nearly three years to clear the stockpile.

The reason for the chunks of unsold homes is the municipal authorities’ feverish land sales over the past five years.

Indeed, with its gross domestic product just a fraction of that of Shanghai, Beijing, Guangzhou and Shenzhen, Hangzhou’s income from land auctions — 132.7 billion yuan — put it in the 4th position nationwide last year with a total of 8.14 million sqm of land sold. The staggering volume can translate to total floor space of 21.57 million sqm into the market in the next year or two.

Even as the market took a downturn since this year, the government continues with the breakneck pace — 34 billion yuan worth of plots were auctioned in January, setting a new monthly record. And, adding up the sales so far in February, the city’s land revenue has already reached 45 percent of last year’s volume.

Worse still, demand — a more fundamental determinant — has also waned. Besides the general crackdown on speculation like household (hukou) restrictions and fewer mortgages for second-time home buyers, Hangzhou is facing additional headwind. The city’s housing market is not just for local people; buyers from other parts of the province contribute the bulk of home transactions there with cash-rich Wenzhou investors alone accounting for more than 20 percent. Thus when the clampdowns — mostly targeting non-local buyers — are carried out, Hangzhou is bound to suffer more.

Certainly, local authorities won’t sit idle should things exacerbate — it is especially the case in Hangzhou as 80 percent of local fiscal revenue hinges on land sales. The city may thus put less teeth to the implementation of anti-speculation curbs.

Also, Hangzhou remains a magnet for the province’s tourists, shoppers, college graduates and wealthy businessmen on strength of its scenic landscape and thriving industries like e-commerce. A notable cluster of private enterprises as well as the city’s own population of 8.8 million also boosts sustained demand for housing. 

Some observers argue that not too much should be read into the recent price cuts as they are necessary corrections on the exorbitant home prices in the city. Moreover, the moves will surely speed up the destocking process. Most developers are not under too much strain as they still possess considerable cash reserves following robust sales last year.

– Contact the writer at [email protected]

RC

 

EJ Insight writer

EJI Weekly Newsletter

Please click here to unsubscribe