June 16, 2014
China Property
Quick Comment: May Sector
Data – Signs of Stabilizing,
Yet to Call It a Bottom

Mixed investment headline numbers – new starts
stabilized …: NBS released the property sector’s May data.
The widely watched residential GFA new starts fell 12%
YoY in May, improving from April’s -18% and Jan/Feb’s
-29.6%, narrowing the YTD drop to 21.6% YoY. Land sites
sold also improved, up 1% YoY in May versus Mar-Apr’s
17-20% drop; this may continue to help stabilize the fall in
GFA new starts. The lower-tier cities' land sites sold have
declined 9% YTD while tier-one/two are still up 1-6%. We
maintain our forecast of -15% for 2014 GFA new starts.  

… Real estate investment further decelerated: However,
the impact of both the drop in  new starts and the rise in
completion on residential real estate investment (REI)
growth became more apparent. May REI decelerated
further to 9.6%, which is the first single-digit growth rate in
16 months. Moreover, the REI/sales ratio surged to 129%,
which is the worst/highest since Oct 2008. The ratio YTD
has reached 107%, which may further contain REI growth.   

May sales decline narrowed: Residential GFA sold in
May fell 10.8%, improving from -15.7% in April, although
the YTD drop widened 0.6ppt to 9.2%. May sales value
also improved, to -11.3% from -15.4% in April, and YTD
is up 0.3ppt to 10.2%. However, June 2013 recorded a
31% MoM rise in sales volume and a 24% MoM increase
in sales value. The lackluster MTD sales may make it
challenging for June sales to narrow the YoY decline
further, although the less demanding base effect may
help improvement in 2H14, in our view. As stated in our
May 27, 2014, report, “China Economics and Property:
A Déjà vu of Housing Market Correction?”, lower
mortgage costs and timely policy reactions would help
stabilize demand.