High Destocking Pressure On Some Regions In ChinaWith the slowdown in the Chinese economy and the end of the property-crazed era, the China property market started showing downward trends since mid-2014. To support the slowing economy, the People’s Bank of China has, since November 2014, cut benchmark interest rates six times and reduced banks’ reserve ratio five times. These, combined with stimulating measures implemented, have successfully improved demand in the property market, resulting in an increase in overall transactions.

However, the ratio between the total unsold floor area and sold floor area in China has been increasing from 25% in 2011 to 51% this August, meaning that inventory of unsold homes has been growing since 2011. On the other hand, during the period, real estate investment has always been higher than the sales value and as developers keep investing money in their inventory, supply has always been higher than demand. One important thing to note is that, the actual floor area of unsold homes may be much higher than the number shown in the official records.

Up until the end of September, the four tier-one cities, Beijing, Shanghai, Guangzhou and Shenzhen, have a rather reasonable 9.39 months sales of inventory, with unsold floor area rising 5% m-o-m to 36.87 million sqm , the cities show the highest m-o-m increase among the 38 studied cities, despite the 2.1% y-o-y drop. The increase is assumed to be the result of developers’ effort to reach its yearly sales target during the traditionally active period of September and October. Sales in tier-one cities and some of the tier-two cities with days sales of inventory below 15 months is expected to pick up following the rate cut and reduction in reserve ratio in October.

However, among the 38 studied cities, 14 of them have days sales of inventory above the 16.44 months average around the country, most of which are tier-three or tier-four cities. These cities tend to suffer from unbalanced economic development and poor allocation of public resources. Together with the nationwide economic downturn and a fall in demographic dividend, property prices in these cities remain under destocking pressure.