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First-time buyers boost home sales in smaller cities

2014-06-25 11:02 China Daily Web Editor: Qin Dexing
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A customer walks past an Evergrande sales outlet in Yichang, Hubei province. Some leading domestic developers remain optimistic that inelastic demand from first-time buyers will revive transactions in second- and third-tier cities. Zhou Jianping / For China Daily

A customer walks past an Evergrande sales outlet in Yichang, Hubei province. Some leading domestic developers remain optimistic that inelastic demand from first-time buyers will revive transactions in second- and third-tier cities. Zhou Jianping / For China Daily

Despite a month-on-month slump of housing prices in May for the first time in almost two years, some leading domestic developers remain optimistic that inelastic demand from first-time buyers will revive transactions in second- and third-tier cities.

He Miaoling, vice-president of Hong Kong-listed Evergrande Real Estate Group Ltd, said the property sector seems to have stabilized after some major shifts earlier this year, including the decline in May and the failure of some small developers.

"Transactions were robust in June, especially in second- and third-tier cities. We've gotten a boost in confidence about sales," He said.

According to the China Real Estate Index System, an affiliate of SouFun Holdings Ltd, sales by area in 40 cities rose 13 percent month-on-month in the second week of June, with a year-on-year gain of 7 percent.

On Sunday, sales at a new Evergrande project in Pingdingshan, a coal-rich city in Henan province, reached 610 million yuan ($98 million).

The group said that was a single-day record for a new launch in a third-tier city.

"The robust performance will help promote a steady recovery of the home market," said He.

The Guangzhou-based property developer, a market leader, said sales rose 64.4 percent to 56.21 billion yuan from January to May. That's more than half of the full-year sales target of 110 billion yuan, company sources said.

Sales of Poly Real Estate Group Co Ltd, another major developer, posted a dramatic reversal from a 12 percent decline in April to a 10 percent gain in May, company sources said.

Another property giant, China Vanke Co Ltd, achieved more than 40 percent of its annual sales target during the first five months, company sources said.

The developers that have run into trouble didn't react properly to the shifting market, which has become more competitive, according to He, who added: "Only those focusing on the development of market-oriented homes will report positive business growth."

He attributed Evergrande's robust sales to the development of more market-oriented projects, especially in second- and third-tier cities.

Xu Jiayin, chairman of Evergrande, said prices in second- and third-tier cities will rise 5 percent in 2014 if GDP grows by 7.5 percent.

"Growth for the property market will be from sales in the second- and third-tier cities," Xu said.

Zhang Biao, general manager of Nanning Longbanyuan Real Estate Investment and Consultancy Co, said a market orientation will support the recovery of the property market.

"Urbanization will boost housing sales in the long term and developers should build more market-oriented products to meet inelastic demand from the fast-growing population of buyers in second- and third-tier cities," Zhang said.

According to the Ministry of Housing and Urban-Rural Development, there are about 80 million urban residents aged 24-28 who are potential homebuyers.

To support demand from first-time homebuyers, the People's Bank of China in May told major lenders to speed up mortgage approvals, a move Zhang said was meant to promote sales.

"Demand is still strong, especially in smaller cities. The government needs to introduce more policies to encourage homebuyers and to maintain stable economic development, since the property industry accounts for more than 15 percent of China's GDP," Zhang said.

Zhang noted that many cities have eased property purchase restrictions.

"More monetary policy easing and the removal of restrictions on multiple house purchases are necessary for a recovery of the property market," Zhang said.

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