Homebuyers return, driving tentative property recovery in China

[BEIJING] Yi Anwen bought a home for 1.95 million yuan (S$415,000) in the southern Chinese city that borders Hong Kong from embattled developer Kaisa Group Holdings Ltd, which has defaulted on some of its debts while being investigated as part of a corruption probe.

Although Mr Yi and hundreds of other buyers in Shenzhen have spent the past six months fighting to take ownership of their homes despite being blocked by the investigation, the 33-year- old engineer, who made his purchase in September, doesn't want his money back now.

"Home prices in Shenzhen have risen so much in the past few months," Yi said. "Buying a similar home now would cost me about 2.5 million yuan. Refund? No way!"

Shenzhen, where home prices have been rising since December, is shaping up as ground zero of a property market recovery that is slowly taking hold in China's major cities.

In Beijing and Tianjin, prices also have been increasing. And the decline in average prices in 70 cities tracked by the government narrowed to the lowest in 10 months in March after policy makers began reversing four years of property curbs and cutting interest rates.

Last year's property slump has weighed on an economy that is estimated to grow this year at the weakest pace in 15 years.

"Home prices are almost at the bottom," said Alan Jin, a Hong Kong-based real estate analyst at Mizuho Securities Asia Ltd. "If simultaneous increases in both price and volume are the criteria of a recovery, that's what we're seeing right now."

PLUNGING IN

Huang Yanbin, who had been waiting three years to upgrade to a bigger home in the eastern city of Hangzhou, last month purchased a 2.2 million yuan, 89sq m apartment near the north end of the scenic West Lake. He funded it by selling his current home, which he said he bought at a "relatively cheap price," many years ago.

"As soon as I saw prices picking up, I figured this might be a bottom in the near term, and I plunged in," Mr Huang, a 41- year-old purchasing manager, said at the marketing center of Jinmao Residence, the half-completed project by Franshion Properties China Ltd. that will become his new home.

Out of the complex's 208 apartments in two blocks, almost all were sold within two days after becoming available on April 26, sales manager Guo Yuhang said. New-home prices in Hangzhou were 13 per cent lower in April compared with January 2014, according to SouFun Holdings Ltd.

RAISING TARGETS

JPMorgan Chase & Co, Barclays Plc and other banks have raised share-price targets for Chinese developers, including Franshion and China Overseas Land & Investment Ltd., by as much as 41 per cent, underpinning a stock market rally that has pushed valuations to record highs.

Aiding the property rebound, the central bank cut interest rates three times since November, the latest on May 10. On March 30, it lowered the minimum down payment needed for second homes to 40 per cent from 60 per cent.

"We can't call it an obvious recovery yet. It's just stabilising," said Yang Zhao, Hong Kong-based chief China economist at Nomura Holdings Inc. "It can hardly lead to any major rebound in the economy, but it helps avoid the risk of a hard landing." Real estate made up a third of China's economic activity in 2014, according to Gavekal Dragonomics.

NEW INVESTMENT

While demand is returning, investment in new property development isn't. As developers refrained from starting new projects to clear existing inventory, investment in the first four months of this year grew at the slowest pace since at least 2012, according to government data.

Developers bought 33 per cent less land in the January-to-April period, and new construction starts fell 17 per cent.

Property sales rose 16 per cent in April from a year earlier, the first increase this year, the National Bureau of Statistics said. New home prices in March increased over the previous month in 12 cities out of the 70 tracked by the government, the most since May last year.

New-home prices in Shenzhen started going up in December and had increased 2.5 per cent as of April, according to SouFun. The city is at the forefront of an economic recovery: it reported a 7.8 per cent rise in gross domestic product in the first quarter, beating the biggest Chinese cities.

NEW FIGURES

Prices in Beijing started rising in March, ending eight months of declines. They also rose in Tianjin and stopped falling in Shanghai. The statistics bureau was scheduled to release figures for the 70 cities on Monday.

The recovery is sustainable because the government has seemed willing to unwind property curbs, and the economy will likely improve in the second half of the year due to more expected stimulus measures, said Mizuho's Jin.

An index tracking Shanghai-traded developers more than doubled since Sept. 30, and a Bloomberg Intelligence gauge that also includes Hong Kong-listed homebuilders surged 67 per cent.

Still, the pickup in demand remains patchy, with smaller cities experiencing a property glut after years of overbuilding.

"Uncertainties about the recovery remain relatively large," said Du Jinsong, Hong Kong-based analyst at Credit Suisse Group AG, citing a lack of evidence that government easing can spur credit growth. "We're still not optimistic over the medium to long term." Mr Huang, the Hangzhou buyer, said he's sure the timing of his decision was right.

"Interest rates are still falling, so of course prices for good quality apartments will climb," he said. "You just need to make the right pick."

BLOOMBERG