Standard Chartered’s economics team has produced out another excellent research report.
Has the government succeeded in cooling the property sector? Are prices falling and if not, will they? they ask. Although sales of apartments have plummeted in Shanghai and Beijing what is going on inland?
In July, the bank asked 30 property developers spread across six Tier 2 and Tier 3 cities what the situation was like in their areas. Standard Chartered doesn’t say which cities they visited or which developers they spoke to. However, the sort of city defined in China as a Tier 2 would be Suzhou, Hefei, Lanzhou, Shijiazhuang, Urumqi. Tier 3 would be Dongguan, Shaoxing, Nantong, Zibo and so on.
The report says the property developers have not seen any falling prices yet in their cities, and that they are continuing to build new developments. Twelve of the 30 developers had no immediate plans for new build, but the other 18 said they were planning to "start a substantial amount, equivalent to some 60% of the current land they had under construction". In addition, scarcely any developers have pushed back their construction dates.
"This is important, since if sales and construction activity holds up in most Tier 2 and Tier 3 cities, then the economy will not tank, and the State Council will not be forced to loosen real-estate or monetary policy," said Standard Chartered.
Meanwhile, land prices have stabilised after falling sharply at the beginning o the year. The majority of Tier 2 and Tier 3 cities have not seen land prices fall – and of the ones who reported a decline, five developers said they had seen 5-10% decline and four an 11-20% drop.
Developers are also continuing to build up their land banks. Beijing has recently sent out a stern warning that developers must develop their land within two years of buying it or face confiscation, but it appears local governments are unwilling to enforce the rule. Only five out of 30 said there had been "a lot of pressure on them" to follow the rule.
In terms of buyers, 15% pay in cash without a mortgage. 60% are locals, and 68% are buying property to live in, with the rest buying to invest. Sales volumes are likely to fall, the developers thought, and prices are apparently a bit softer too.
So overall the picture is relatively healthy. The bubble does seem to be deflating softly without any signs of a crash that would trigger wider problems for the economy.