Home sales improve, but developers refrain from investing

Chinese developers continued to sell more homes in the first four months of 2023, but remained cautious about investing in the property sector. Property sales increased by 8.8% to CNY3.98 trillion in the first four months after rising by 4.1% in the first quarter of the year, government data shows. Home sales were particularly strong, rising 11.8% up until April after gaining 7.1% in the first three-month period. Demand in the property market “has been released quickly” since the start of the year, Fu Linghui, Spokesman for the National Bureau of Statistics (NBS) said, adding that home sales had been strong in the Greater Bay Area, the Yangtze River Delta area and the Beijing-Tianjin-Hebei region. Tier-1 cities such as Shanghai and Shenzhen have been supporting demand in these regions. The positive sales data indicates “quite some bottom fishing activities in the home buying market”, said Iris Pang, Chief Economist for Greater China at ING.

Moody’s revised its outlook for the sector from negative to stable on the basis of better sales and funding conditions for developers. To revive the property market, Beijing taken measures such as encouraging lower mortgage rates for first-time homebuyers, which stand at around 4.01% on average in a hundred mainland Chinese cities, according to the Beike Research Institute. “Policy support for the housing market since the start of this year continued to be in play, improving home-buying sentiment and driving the recovery of the market,” said Liu Lijie, Analyst at Beike. Improvements in home sales thanks to lower down payment ratios and mortgage rates “have improved the finances of developers”, said Yan Yuejin, Director of the Shanghai-based E-house China Research and Development Institute.

During the first four months, developers had CNY4.52 trillion in capital, down 6.4% compared with the same period last year. It was, however, an improvement from a 9% drop in the first quarter and a 15.2% loss during the first two months of this year. This capital, however, has been mostly reserved for completing current projects instead of starting new ones. Investment in property development is still declining, indicating that the supply side has yet to recover, analysts said.

In the first four months, investment in property development fell by 6.2% to CNY3.55 trillion yuan, dipping further from a 5.8% fall in the first quarter and a 5.7% decline in January and February. Residential investment stood at CNY2.7 trillion up until April, down 4.9% year-on-year. New home construction shrank 20.6% by floor area, while completed construction rose 19.2%. “For now, developers are still focusing on delivering homes, so demand for new construction remains weak,” said Beike’s Liu. “Support from housing policy is expected to help the market recover and developers replenish their liquidity. “When they can improve their balance sheet health, they will also restore confidence in property investment,” she added, as reported by the South China Morning Post.