Housing market faces poor sales, rising debt

Although the full impact of the novel coronavirus on the real estate sector in China is yet to be ascertained, domain experts said developers should deal with challenges first before trying to seize potential opportunities.

More than 16,400 new property agencies were established between Feb 1 and March 25, down 45.8 percent from a year ago, according to data collected by business information provider Tianyancha.

During the same period, the number of property firms trading pre-owned apartments had shrunk by 1,335, and 23.6 percent of the firms that shuttered had come into being within the last one year, according to a report in the China Securities News.

In the first quarter, new home transaction volume declined almost 26 percent to 192.35 million square meters. Among first-tier cities, new home transaction volume tumbled more than 43 percent in Beijing, nearly 48 percent in Shanghai, some 42 percent in Guangzhou, and around 4 percent in Shenzhen, according to National Bureau of Statistics.

"Residential trading started to grow at a slower pace since the end of 2019, but COVID-19 has put the brakes on growth across the nation," Zhang Xiaoduan, senior director of research in South and West China with Cushman & Wakefield, said.

NBS data showed that key numbers including residential trade volume, sales revenue, investment, and land acquisition all declined significantly. Pressured by lower sales and mounting debts whose repayments are due, property developers would do well to pay attention to the safety of their capital, said Xie Chen, head of research with CBRE China.

According to Ping'an Securities, Chinese real estate developers' combined debt rose 19.4 percent year-onyear to 1.46 trillion yuan ($205.7 billion) this year. In July alone, debt worth 149 billion yuan would be maturing.

Compared to their big-name counterparts, smaller enterprises have limited financing channels, and their financial problems will be grimmer, according to Xie. He added their tightened capital flows will accelerate industry-wide integration in the form of a potential shakeout, or possible mergers, acquisitions and takeovers.

Meantime, the epidemic also created opportunities for some players to diversify their businesses into different sectors like property management, community service, and leasing among others, said Zhang of Cushman & Wakefield.

In addition to business diversification, developers may want to embrace asset-light business models, said Xie with CBRE.

The epidemic also sheds light on the importance of health and consumers will be more interested in details of health-related features and lifestyles of future residential products, said Yang Yuechen, head of research and consultancy in Shanghai and Beijing with Knight Frank. "Therefore, developers should consider launching products tailored to meet such health requirements," Yang said.

"Most homebuyers paid a lot of attention to the hardware of a residential property before, but real estate developers in the future may realize their clients are shifting to different criteria when they make a judgement, such as the community environment, safety and security of surrounding area, comfort quotient in living, property management, and service quality," said Tang Hua, head and senior director of Savills Shanghai's residential sales department.

Pan Hao, an analyst with the Beike Real Estate Research Institute, said under the special circumstances created by the pandemic, many developers are taking proactive action in financing and marketing, with more under development through upgrading of existing businesses.

Analysts agree it is highly likely there will be a rebound in demand and supply of residential properties after the pandemic ends. In order to avoid price wars, home developers should ease their capital flow, and try to obtain prime lands at reasonable prices when the competition is not too fierce, Pan said.