China First Tier Home Prices Start to Shake

One of the optimistic soft landing scenarios tossed around is that home price troubles are concentrated in third- and fourth-tier cities. First tier cities such as Beijing, Shanghai and Shenzhen won't see a big drop due to continued demand. If that scenario played out, it indeed could be called a soft landing, but unfortunately there are already some rumblings in the first-tier cities.

As the article below states in the headline, the changes are subtle and thus not yet a trend, but this bears close watching because if first-tier cities experience a drop in prices, it is 2008 all over again. An important part is the psychological aspect: first-tier cities are considered a refuge, the blue chips of Chinese real estate market. If prices drop there, it will be a major psychological blow to investors and also the general public. At the moment, the developers are blaming the price reductions on government policies aimed at lowering home prices. The key here will be the same as elsewhere: demand. Lower prices in the face of strong demand will attract more buyers into the market; weak demand will cause these large price cuts to put greater pressure on the market in coming weeks.

媒体称一线城市房价安全岛塌陷 正出现微妙变化

First-tier cities, "refuges" collapse

Property was considered "safe haven" in first-tier cities, emerging subtle changes.

Last week, located in Beijing Daxing, Beijing Vanke [ Introduction News ] Orange project low-cost market, the average price is only 21,000 / square meter, while the market had expected that the project is priced at 25,000 -26,000 yuan / square meter. Company general manager of Vanke Beijing Mao Daqing clarify that this is not the developer initiative to cut prices, but with the result of the government's regional policy limit.

In Shenzhen, there are developers who told reporters, located off the inside of a large redevelopment project for the year would have residential apartments products into the market, the developers intend Price 60,000 / square meter, but the government price of 40,000 yuan / square meter. Partial several other high-end projects also experienced similar problems.

"The so-called classification regulation, not like before more market-oriented understanding, in fact, the Chief of colors thicker." Analysis of the developers, said the purchase limit, the pre-sale permit issuance, capital supervision of these policies, how the combination with How much effort are local final say, in fact, strengthen the regulation means more places.

Chairman Cao small mountain rivers and mountains Capital believes that the current real estate market differentiation, different regions and between cities is very serious. However, the regulation does not mean exit administrative classification of policy instruments, which may be more severe, because the local government to control the high prices of land and access to income from both.

In the above context, Beijing, Shenzhen, Guangzhou recent market launch of the project almost are cheap. Centaline Research Department statistics show that Beijing has a total of 38 projects will enter the market in April, most of which are low-end commodity housing. These projects increase in basic controls 5% -10%, which is frequently the same period last year rose by 20% -30% of the price is quite different.

In Guangzhou and Shenzhen, March and April are basically new projects to affordable shipping, Guangzhou, and even a few items and pay the down payment scenario developers. "Dismal turnover during the Spring Festival, many projects did not dare to March opening, the situation is more delay," Shenzhen, a correspondent who said that last year the Shenzhen property market is ahead of overdraft, this new supply volume is large, it is difficult to support housing prices.

Central China Real Estate Research Center statistics show that as of 23, March 54 cities total housing signing 148,500 units, down 36% compared to the same period in 2013. Decline in first-tier cities which reached 45.8%, a decline of 48.2% in the second-tier.

Centaline chief analyst Zhang Dawei noted the need for housing sales prices on the second-tier market may lead to a more significant amount of running. As before, 30 housing prices announced before the February sales results, the single room rate 30 February sales total 66.5 billion. Ring cut 39 percent in January of 108.288 billion. The national housing climate index also fell again, down to 96.91, compared with last December fell 0.30 points.

Compared to small and medium-tier cities housing prices get together, most of the companies are listed on the first tier cities housing prices, higher demands on performance, but once sold, the stock slump may occur. The existence of these factors led to a change in first-tier cities may surprise market expectations. 21st Century Business Herald reporter to incomplete statistics, at present known to occur price adjustment cities including Beijing, Guangzhou, Hangzhou and Nanjing.

"It was thought that the regression line will be safe, but the present situation is not the case." A radical turn the wheel in the past two years, a second-tier developers who laments sales to the first-tier cities big problem, but it is difficult to guarantee profit margins, For a Hong Kong-listed developers, gross margin and net profit margin is more important.

Last year won a number of high-priced land in Beijing Agricultural Exhibition Hall, including the king of financial innovation in China [ Introduction News ] Chairman Sun Hongbin, results of the meeting in 2013 even worried the project will Nongzhanguan pricing 150,000 yuan / square m can not pass approval.

Has been concentrated in a second-tier cities, known for its high gross profit developers in Guangzhou KWG [ Introduction News ] executives also said the company does not rule out individual projects will be conducted in an appropriate promotional basis to maintain a 15% net profit margin on. China Co-President Dingzu Yu Yi Ju pointed out that from the overall trend, the profit level of housing prices will decline further.

Wu Zhihui, director of LaSalle Bank study warned that the impact of policy levers banks have tightened real estate sales terminals have begun to appear, the end of the current real estate market is in a small period of prosperity, growth in turnover in 2014 will fall to single digits. In this context, robust enough to finance the full security of small developers need to avoid solvency crisis.