Homebuyers in 'wait and see' mode as prices shake out

China's home price growth continued to ease in February, while turnover dropped significantly.

The first price report to be issued after last week's housing market tumble, which savaged real estate stocks, showed momentum has indeed slowed but also that the cooling didn't arrive precipitously and that a national crash is not on the horizon.

Month-on-month, new home price growth in 100 Chinese cities monitored by China Index Academy, a private institution affiliated with China's largest real estate website, rose 0.54 percent in February, compared with the 0.63 percent gain recorded in January.

Monthly price gains have slowed since December, according to the academy.

Year-on-year, new home prices in the cities rose 10.79 percent in February, which was less than January's 11.1 percent growth. It was the second consecutive growth decline since December.

The slowing price gains were accompanied by a sharp drop in transaction volume.

Data from Centaline Group, a national housing brokerage, showed that in February, a total of 135,600 new units were sold in the 54 major cities it tracks. This was 13.8 percent lower than last February's numbers and 35 percent below this January's.

"As the overall market outlook turned bearish, developers, banks and homebuyers adopted a 'wait-and-see' attitude, and housing supply and turnover in most cities reached a historic low point," China Index Academy's report said.

China's metropolises experienced sharper slumps in turnover than smaller cities in February. In Beijing, housing sales registered at the city's housing bureau fell by 68 percent from the previous month, the weakest numbers since January 2012.

Still, the slide failed to weigh on prices, and Beijing saw new home prices increase 1.97 percent month-on-month, the strongest gain among the 10 major cities China Index Academy monitored. The average gain, it said, was 1.08 percent.

Hu Jinghui, vice-president of Bacic5i5j.com, a property brokerage, said potential buyers' "wait-and-see" sentiment has risen in 2014, while developers and banks are increasingly cautious of the potential risks in China's housing market.

Since the Lunar New Year, it also has become more difficult to get home loans, a development that has caused many to cancel or postpone their purchases.

Major Chinese banks have scrapped favorable policies such as giving discounts on first-time mortgages, and smaller institutions even raised the mortgage rate to 105 percent of the benchmark rate, media reported.

A number of real estate stocks tumbled last Monday on a report that Industrial Bank Co Ltd halted some of its property loans and property developers in Hangzhou cut prices to promote sales, highlighting how jittery public sentiment has become.

But data from Centaline showed that turnover in big cities recovered quickly from the Spring Festival period, a traditional off-season for housing deals. Turnover from Feb 21-27 fell by only 5 percent from the January average recorded in 54 cities. In first-tier cities, Centaline said, turnover even increased.

"We think that under the current macro-regulatory environment, a claim of the 'collapse of the property market' is an exaggeration," said Cheng Yun, an analyst with Centaline Research Center.

"Except for risks in a few cities, the potential demand is still stable, particularly in first-tier cities," Cheng said.

A report from Shenyin & Wanguo Securities said that even if the credit supply posts zero growth this year - a worst-case scenario - overall sales will only drop by 15 percent. The report went on to add that this probably won't happen and sales should grow by 17 percent in 2014.

Pessimism in the market, however, may deter potential buyers and thus weigh on real estate turnover. Centaline said the market is searching for clues in the government's "two sessions"; thus, March data will be a "bellwether" for the property market. But considering pervasive hesitant sentiments, the "bellwether" month could be delayed to April.