Greater divisions appear in China's property market

SHANGHAI - Weak residential property sales and rising land prices have led to Chinese property developers feeling the pinch. Greater divisions are appearing between home prices and sales across China.

Official data showed sales of residential property dipped 7.7 percent during the first quarter to 1.1 trillion yuan ($177.42 billion), while sales by residential area contracted 5.7 percent to 178.25 million square meters in the same period.

The weak demand has forced both government and developers into action. The city of Nanning in southwest China's Guangxi Zhuang autonomous region relaxed its policy over home purchasing on Monday night.

More second-tier cities are expected to loosen their grips over property curbs if demand remains subdued.

Capital Economics, a London-based research firm, said China's property sector faces significant headwinds. The usual post-Chinese New Year rebound in property sales has been feeble this year, with sales still below where they were one year ago.

Analysts say the sales decline during the first three months is due in part to a high base at the same period last year, when people rushed to buy homes before harsher curbs were imposed to squeeze speculators.

And they argue the rest of the year merits little optimism. Liquidity has remained tight since the beginning of the year and it takes banks longer to approve loans for developers. Some banks are reported to have suspended mortgages for home buyers since late last year.

All of these circumstances meant Chinese developers got off to a bad start. Suppressed demand and challenged credit access have sent smaller developers reeling. A small developer in Fenghua in east China's Zhejiang Province went bust after it defaulted on a 3.5 billion yuan debt earlier this year.

Others that barely survived have resorted to price cutting. In Hangzhou, a city that rests by the picturesque West Lake in Zhejiang, developers made price cuts in the hope of getting apartments off their books faster, a move that caused jitters that the bubble of the country's property market has neared its time to burst.

Some developers slashed prices by more than 30 percent, indicating the pressure to clear their inventories.

Analysts say the price cuts point to the deeper malaise of China's red hot property market -- a building boom over the years has created mismatches between supply and demand.

Total homes on sale stands at 113,000 in Hangzhou, an inventory that takes 17 months to deplete based on the average monthly sale of 6,630 houses last year, according to real estate consultancy CBRE.

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