THE recent rise in contracted sales of homes is an encouraging sign for the country's housing sector, but the recovery may be confirmed only with a sustained improvement in the subsequent months of this year, Fitch Ratings said in a report released today.
Last month, contracted sales for the Chinese homebuilding sector rose by 16 percent from a year earlier, compared to a 0 percent year-over-year growth registered in March.
The increase in contracted sales was due to a couple of reasons which include government relaxation of home purchase restrictions that unleashed pent-up demand, banks accelerating approvals for loans to both buyers and homebuilders which increased liquidity, and homebuilders lowering their selling prices that helped to reduce inventory, according to the rating agency.
And the improvement of contracted sales over the past few months was mainly driven by the improving demand in Tier 1 and Tier 2 cities as most of the homebuilders switched their focus to these cities. Sluggish demand and high inventory levels in smaller cities, in contrast, continue to leave pressure on sales and average selling prices in these markets. These changes in the product mix will result in increased average selling prices for developers this year, Fitch said.
Demand from people seeking upgrading homes, in particular, will be a key support for the recovery, mainly fuelled by improving affluence and supportive government policies. Meanwhile, the perception among investors that properties in Tier 1 and Tier 2 cities have better yields will also help sustain demand for housing in larger cities, according to Fitch.
A latest release by the National Bureau of Statistics suggested a similar scenario from the price perspective.
Prices of new homes in China's 70 major cities climbed 0.3 percent in April from a month earlier, the first rise in 10 months. However, they were mainly confined to Tier 1 and a limited number of Tier 2 cities whereas the rest one still suffered declines, the bureau said.
