May 13, 2014 04:33 PM

Housing Market at 'Tipping Point' This Year, Analyst Says

(Beijing) – China's housing market has reached a tipping point and transaction volumes will begin to shrink, an analyst with Hong Kong-based brokerage and investment group CLSA Asia-Pacific Markets said on May 12.

"We really think this year is a tipping point for the industry," Wang Yan, director of the CLSA's property research department, said. "From 2013 to 2020, we expect the sales volume of the country's property market to shrink by 36 percent."

The research was based on a CLSA survey of 609 completed residential communities that included 800,000 units in 12 cities. It found that 15 percent of the homes were vacant on average.

The vacancy ratios in metropolitans were relatively low, at around 10 percent, while those in third-tier cities – a real estate industry term that includes mostly cities smaller than provincial capitals – were the highest, she said.

"The stock in third-tier cities has been building up all the time, but their capacity is limited," Wang said. "So they can keep on building but no one will buy."

The research also presents figures that show the country's supply of residential properties has far outstripped demand. CLSA found that every year about 10 million homes were built while only 7 million were needed.

At the current speed of building and sales, the vacancy ratio is set to increase further, with 3 to 4 million unwanted homes completed every year, the research shows. By the end of 2017, the total excess supply could hit 18 million, which could be worth 35 percent of GDP.

The next one or two years would present a test of survival for developers, Wang said. But the government will not stand by, given the importance of the property sector to the national economy.

"The government has a very low tolerance for a decline in home prices, and it will step in for a rescue," she said.

Eric Fishwich, director of CLSA's economic research department, said the changes in property market conditions have yet to reach the government's bottom line.

The market would continue to be sluggish for nine or 12 months, or until the government feels action is needed to prevent falling prices from triggering systemic risks, he said.

Relaxing policies such as restrictions on home purchases and mortgage loans could be a temporary stimulus to the market, he said, while urbanization and reform of the hukou, or residence-registration system, could provide long-term support.

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