The National Day Golden Week has ended in China. Traditionally, the Golden Week (or more broadly, September and October) has been a peak season for real estate sales for China.
The increasingly tough purchase restrictions in some cities and credit and monetary tightening have crushed the transaction volumes across the country for the best part of the year even though prices haven’t moved any lower on the whole. Unfortunately, real estate developers are already feeling the impact of low transaction volume, namely the problems with their own cash flows and inventories build-up as they are unable to sell as many as they wanted. Developers have probably counted on September and the Golden Week, but the Golden Week has become no-so-golden now.
Shanghai, for instance, experienced the worst Gold Week holiday in 6 years. Only 398 units were sold in the primary market for the entire the 7-day long holiday, which is only 20% of the same period of last year (in other words, sales dropped 80% year-on-year) according to cnyes.com. According to Xinhua, one developer in Jinan tried to sell their flats by offering gifts like iPad and other electronic products, but without much success. Beijing has been doing somewhat better according cnyes.com, as 866 units were sold in the first 6 days of Golden Week, only 10% fewer than last year, but 62% lower compared to the first week of September. Sales have been slow even as developers offered gifts and others. In Nanjing, one developer even offered a buy one (house) get one (flat) free according to Xinhua, as that developer has failed to sell those houses since December of last year.
In another news, CREIS data shows that home prices in 100 cities in China fell in September on a month-on-month basis by 0.03%. It does not sound significant, though it is the first month-on-month fall in 13 months. With the on-going weakness in terms of transaction volume and the increasing pressure on developers, more price cutting should be expected in the coming months and quarters. The worrying thing is that the implications of the burst of real estate bubble in China, in my view, are still not fully appreciated by the market, and the market is still overly bullish on the Chinese economy.
Of course, the news isn’t all bad in the Golden Week. Retail sales appears to be doing fine in various cities. Even in Wenzhou as businesses are squeezed by the high interest rates from the underground banking system and folks scrambling to sell properties, retail sales for the week was up 12.4% yoy according to Xinhua. This figure should be in nominal term though, so the figure would be around 6% in real term, which is somewhat less impressive. Nevertheless, it is still growing amid the debt crisis behind the scene.
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