Real Estate Destocking

China real estate destocking chart
China real estate destocking chart

CEIC China Data Talk - April 21, 2016 Destocking property inventory has been set as one of the Central government’s top economic priorities in 2016. However, there are a lot of challenges to be overcome. First, it takes 21 months to sell the inventory of newly completed residential commodity buildings (calculated according to the 2015 monthly average sales of floor space of existing residential commodity houses). Second, there are the buildings under construction and ongoing new housing construction adding to the total inventory. All these have made the reduction of the excess inventory in the property market within a few years an impossible task to fulfill. Household’s Perspective Property assets are generally regarded by Chinese households as a way to retain value and as a primary emblem of wealth. Thus, they are considered to be the major assets for every household. At the same time, properties can also be interpreted as a major source of liabilities. This can be illustrated by the fact that in 2015 housing mortgages are equivalent to approximately 48% of total household loans making property prices closely related to the wealth of millions of households. Therefore property prices are crucial in determining the spending sentiment of most households, which in turn, casts a major impact on the domestic demand. Real Estate Developer’s Perspective The government's introduction of the new stimulation policy on property sales is a real favor to the developers. The developers can reinvest the money made from property sales to purchase more land. Then newly purchased land can be collateralized for more loans. The borrowed funds will enable the developers to build more properties for sale in the market. If this cycle continues, the scale of these developers will keep growing. Real estate loans have amounted to around 21% of total loans in China in 2015. Government’s Perspective Income generated from land sales can bring in substantial fiscal revenue to the local governments. This income can be utilized for infrastructure investment to drive higher GDP figures, as well as for lessening the financial burden of the central government. Looking back at 2014, the income from land sales and real-estate related tax revenue accounted for around 30% and 23% of fiscal revenue respectively. That said, the real estate sector remains the most effective tool in achieving the GDP growth target as its contribution to the overall GDP is second to none. Hence, destocking property inventory to reinvigorate China's real estate market will continue to be one of the Central government's key economic tasks. By the China Database Team Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog

21st April 2016 Real Estate Destocking

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