Property launches in China are set to surge in the latter half of the year with developers sticking to their schedules despite mounting inventories, spelling double trouble for a market hammered by months of falling prices.
Prices started to decline in March as the slowing economy hit demand, inventories ballooned and developers began offering discounts. The current slump was confirmed by official data only around the middle of the year, way after developers had already committed themselves to completing projects for 2014.
Developers also have little choice but to heap even more supply in a bloated market due to regulations that stop them from sitting on undeveloped land. Those that fail to break ground on new projects a year after purchasing land will face fines, while those that wait more than two years could have their land confiscated.
The rush to expedite projects will worsen chronic oversupply that analysts warn may take years to clear. Unsold properties will also have broader implications - the sector accounts for over 15 percent of the economy and its fortunes are tied to other industries such as concrete and steel.
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Earlier this month, Kaisa Group and China Merchants Land confirmed that they planned to launch around 70 percent of their 2014 projects in the second half. Country Garden said it aimed to meet 60 percent of its sales target during the period.
Price cuts and promotions are the most common methods that developers use to clear inventory. But tight mortgage credit lines from banks and discrepancies in price expectations between developers and home buyers are not helping, analysts say.
"Buyers' attitude has changed. They feel they can wait," said CIFI Holdings Chief Financial Officer Albert Yau.
China's once white-hot housing market is slowing this year, weighed by the cooling economy and the government's five-year-long campaign to curb price rises. New home prices fell in July for a third consecutive month, with declines spreading to a record number of big cities including Beijing.
So far, only a handful of small developers such as China Overseas Grand Oceans and Jingrui Holding have issued profit warnings. Analysts see little prospect for improvement in the short term.
"The outlook for the next three to five years is not favourable," said Rosealea Yao, a Beijing-based analyst at Gavekal Dragonomics. "If sales are not recovering and inventory is not coming down fast enough, companies will have no choice but to cut their new starts construction."
Big-name developers Longfor Properties and China Vanke said this month that 80 percent and 70 percent of their planned projects for 2014 were scheduled to be completed in the second half, respectively.