China property hard sell intensifies in bid to lift sagging sector
Comment of the Day

September 24 2014

Commentary by Eoin Treacy

China property hard sell intensifies in bid to lift sagging sector

This article from Reuters may be of interest to subscribers. Here is a section: 

Lu Yanzeng, a property agent, said he had not sold a single home in two months. Business this year "is very so-so, it's not as good as last year," he said. "Sales of second-hand homes are slow, but new home sales are brisk."

China's property market, where prices surged to all-time highs for five consecutive years, is experiencing its sharpest slowdown in around two years.

Average new home prices fell for a fourth consecutive month in August by 1.1 percent, meaning the market is now close to wiping out gains seen over the last year. Compared to a year ago, sales as measured by floor space were down 12.4 percent.

While the slowdown in a heated market has benefited millions of Chinese, for whom soaring house prices have made home ownership a distant dream, slackening activity has also raised concerns about the health of China's economy.

It is straining already softening domestic demand and pushing overall fixed-asset investment to lows not seen in nearly 14 years on a cumulative basis between January to August.


Eoin Treacy's view

In an effort to avoid a bubble, the Chinese authorities engineered a property slowdown. They succeeded in that objective and will now need to act in order to avoid a crash. Easing restrictions on property purchases, particularly in tier 1 cities, making more mortgages available and easing credit conditions will all help stoke demand but the question remains as to whether buyers can be encouraged into a declining market.

With the surety of the property market shaken, the government has a vested interest in a strong stock market to act as an alternative investment destination. The creation of the Shanghai Free Trade Zone and the opening up of the mainland-Hong Kong stock market connection represent attempts to boost the capital available for investment in the stock market.

The FTSE/Xinhua A600 Banks Index has been trading above its 200-day MA since July and firmed from that level again today. A sustained move below the trend mean would be required to question medium-term recovery potential.

The Shanghai Property Index has been ranging mostly between 3000 and 4000 since 2010 and is currently rallying towards the upper boundary. A sustained move above 4000 will be required to complete the developing base formation. 

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