Chinese Developers Feel the Pinch

Measures taken by the Chinese government to cool its real estate markets seem to be having an impact, with Xinhua News reporting the inventories of the country’s major property developers surged over the last six months.

According to Wind Information, a data analysis firm based in Shanghai, total inventories skyrocketed to $49.65 billion worth of unsold property as twenty of China’s biggest real estate companies divulged semi-annual reports last Wednesday. A staggering $26.6 billion of unsold inventories belonged to just one company, China Vanke Co., the largest property developer in the country who recorded a 28.5% inventory rise.

Meanwhile, China Merchants Property Development saw a 15% rise in its inventory of unsold homes, worth a total of $6.8 billion.

More worrying perhaps, is the intense pressure to sell faced by 18 of China’s smaller property developers, whose combined inventories amounted to $15.75 billion, an increase of 42% from last year.

The growing inventories followed fast on the heels of a series of stringent measures taken by China’s government to slow down runaway real estate costs, which includes larger down payments on mortgages, prohibiting citizens in cities such as Beijing and Shanghai from buying additional homes, and also new property taxes in some of the country’s most expensive cities.

As China perseveres with its tough measures to restrict activity in housing markets, developers are surely going to feel the pinch, says Homelink analyst Zhang Yue.

“The less competitive smaller-to-mid-size developers will be hit first,” he commented.

According to Centaline Property, the industry has already seen a number of mergers between property developers in the last six months, a trend that looks set to accelerate as conditions begin to take their toll.

But despite concerns of Chinese developers, it’s unlikely the government will ease the restrictive measures any time soon. Skyrocketing house prices are a huge concern for both the government and consumers in China, with many ordinary citizens being priced out of buying their own homes.

Such problems could lead to social discontent, a worry that has always been a major catalyst for Chinese government policy. Faced with a choice between angry citizens and a few angry real estate developers, it isn’t rocket science to predict who will end up losing out.