SHANGHAI, April 29 (Xinhua) -- 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 U.S. dollars), 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.
But the tough sell in some cities has not stopped deep-pocketed developers to snatch land at record price.
Statistics from real estate consultancy Centaline Property showed that land sales in Beijing, Shanghai, Guangzhou and Shenzhen -- China's four first-tier cities -- hit a record high of 177.4 billion yuan in the first quarter this year.
Land sales in the nation's capital rose 57 percent year on year during the January-March period. In Shanghai, that surged more than 160 percent. The most dramatic rise was found in Shenzhen, where land sales were seven times higher than in the same period a year ago.
"Demand for land remained strong in the first quarter. It is an opportunity land sale departments don't want to miss. They expect to make great deals at a time like this," said a source with the Beijing Municipal Land Reserve Center, a government entity entrusted with land transaction in the city.
Across China, land sales rose 40.3 percent to 1.08 trillion yuan in the first quarter and accounted for more than 55 percent of local government's fiscal revenue, according to the Ministry of Finance.
Why the strong momentum? Developers usually have ample cash at the beginning of a year and tend to strike land deals faster than before, hoping to build fast, sell quickly and get cash flow to stay solvent.
"The fact that developers are on a land-shopping spree suggests that they are still optimistic about margins generated from first-tier properties, otherwise they wouldn't have been so generous in buying land," said Zhang Song, a researcher with the Institute of Chinese Land Surveying and Planning.
"With the economic change of gear underway, we expect more volatility in land and housing prices as government intervention withdraws and the market takes over," Zhao said.
Analysts are divided over the future course of property prices. While the recent promotion effort by some developers to slash inventory at a lower price had some believe the dynamic rise of Chinese home prices is running out of steam, many developers are still bullish about the market, especially in first-tier cities.
A more pessimistic view holds that though housing prices in first-tier cities are still holding up quite well, it is only a matter of time for a slump to take over as authorities continue to tighten credit.
Nie Meisheng, director of the Chamber of Real Estate Developers in the All-China Federation of Industry and Commerce, said at a forum in Shanghai earlier this month that despite the continued rise of housing prices, investment, and transaction volume, albeit at a slower rate, the market will see more marked divergence across cities, regions and between developers big and small.
"Moderating sale growth is slowing down developers' cash flow, which in turn dampens investment into the property market. Once investment is down, it will take a toll on housing supply," Nie said.
Rating agency Moody's said on Monday that the weak home sales will continue into the second quarter, as a result of tight bank liquidity and weakened market sentiment.
It also added that year-on-year growth in property prices across China's 70 major cities would slow further in the next 12 months.