REPEAT: China Housing Inventory Has Reached 'Inflection Point'

Repeats Story Initially Transmitted at 08:25 GMT Aug 29/04:25 EST Aug 29

     BEIJING (MNI) - The Chinese housing market has reached an inflection point,

with the inventory of unsold houses having been reduced to the point where some

30 smaller Tier-3 and Tier-4 cities need to increase their home building to keep

up with demand, E-house said in a report released Tuesday.

     At the end of July, housing inventory in 80 cities had dropped 11.1%

year-on-year to 402.11 million square meters, according to a report prepared by

the property information and service provider E-house. Inventories were down

0.5% month-on-month in July. 

     "The current inventory size is equal to the level in September 2013,"

E-house said. "Regulations and controls on the issuance of presale licenses in

some big cities have become stricter, so market supply is relatively weak. But

in some small- and medium-sized cities, the property sector has heated up,

strengthening the momentum of inventory reduction."

     In July, inventories dropped year-on-year in 61 of the 80 cities, with the

cities of Jiujiang(-53%), Hangzhou (-51%) and Xuzhou (-45%) showing the three

largest y/y declines.

     Inventories and transactions turned down in July on both a y/y and m/m

basis. Inventories in the 80 cities dropped 14% m/m and 16% y/y to 32.51 million

square meters. Transactions dropped 10% m/m and 18% y/y to 34.50 million square

meters.

     "The property market in July shows a trend that supply is smaller than

demand," E-house noted.

     Based on data from January to July, transactions have been greater than

increases in supply, Yan Yuejin, director of the research department at E-house,

said in the report.

     "One very important reason for the relatively small supply of (unsold)

houses lies in the fact that some cities have placed strict controls on presale

licenses for high-end property projects," Yan said. "In addition, some property

companies have decided to delay applying for these licenses due to policies

aiming at controlling prices of newly released housing units."

     The inventory volume in Tier-1 cities at the end of July was 21.9 million

square meters, up 1.9% m/m but down 24.2% y/y. Inventories in Tier-2 cities

stood at 2.4484 trillion square meters, down 0.5% m/m and down 9.8% y/y. In

Tier-3 and Tier-4 cities, inventories dropped 0.8% to 1.3537 trillion square

meters, a 11.1% y/y decline.

     E-house said room for the inventories to drop in Tier-1 cities is "not

large" give stocks are already near the historic low registered in the first

half of 2010.

     "But for Tier-2 cities which have not created purchase quota policies, and

for hotspot Tier-3 and Tier-4 cities, current market transactions are active and

the momentum to reduce inventory is relatively strong," the report said.

     E-house said the inventory-to-sales ratio, which it defines as the ratio of

current-month inventory area to the average area of houses sold in the past six

months, should be reasonable when it represents 12 to 16 months of supply. A

ratio higher than that range means inventories are too large while a lower ratio

means they are too small.

     In July, the ratio stood at 10.5 months of inventory on average in the 80

cities, which means the market could consume all the existing housing inventory

in 10.5 months at the current sales rate. The July ratio was 0.3 of a month

lower than in June.

     Given supply is expected to rise and transactions are likely to continue to

be suppressed due to policy controls, inventories could edge up slightly in the

months ahead, moving away from the trough of the inventory cycle, E-house said.

     "The problem that supply falls short of demand may be better tackled in the

second half, thus further stabilizing housing prices," E-house said.

     According to E-house, at least 30 Tier-3 and Tier-4 cities posted

inventory-to-sales ratios of lower than 12 months supply, reflecting their need

to increase land and housing supplies in these cities.

     Tier-3 and Tier-4 cities now face less pressure than Tier-2 cities in terms

of inventory reduction, Yan said. "It fully proves the effect of inventory

reductions have been relatively good." He contributed it to stronger housing

market fundamentals in Tier-3 and Tier-4 cities owing to housing market controls

in larger cities.

     He predicted some Tier-3 and Tier-4 cities and other cities whose

inventory-to-sales ratios are small would increase land sales and home building

to replenish inventories.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com