China's First Tier Real Estate Markets Are The Maginot Line

In the headline below, it says the first tier cities lead the national market lower and that they are the real estate market's "Maginot Line." I'm not sure the use of Maginot line is appropriate here, it sounds like they mean "line in the sand" and maybe in Chinese usage this is what Maginot line means. I don't think they mean to say the property market will definitely collapse.

The article says that for the next 2 to 3 years, short of a government rescue, the property market will be in the doldrums. Here's a chart of first half transaction volume (by area). The cities left to right are Beijing, Shanghai, Guangzhou and Shenzhen.

The article says the national market hasn't been great, but the formerly outstanding first-tier cities are now doing poorly. Average monthly sales area in the first half of the year fell 31.4% in first-tier cities; 15.5% in second-tier cities; and 18.9% in third-tier cities. Prices were up though; 18.6% in Beijing and 10.1% in Shanghai, yoy. Guangzhou and Shenzhen saw average prices up more than 9%.

Several reasons are given for the sales slowdown. Guangzhou's GDP growth rate fell from 12% last year to 7.4% in Q1. Tight credit and the crackdown in corruption hurt sales. Also, many smaller cities have been taking steps to ease buying restrictions, but first-tier cities haven't adjusted policy.

一线城市成交量领跌全国 楼市“马其诺防线”或将崩溃

In accordance with normal market trends, real estate market over the next 2-3 years, clunker, unless the government is determined to save the city.

--- Guangzhou create excellence in real estate consulting, general manager Zhao Zhuowen

Now look at the plate as long as willing to cut prices, turnover can be up, unwilling to lower prices are no longer marketable, put in place after the second half of the expected price, trading volume will hopefully pick up.

--- Radius estate Tang, chief market analyst Hiroshi

Tier cities has long been considered the real estate market, "Maginot Line" two years ago, developers have realized a high-profile return to the market risk tier cities. But the market is not good in the first half of this year, the volume decline in first-tier cities is much higher than second and third tier cities, not only did not "stable" market, but there are "Loser" national trend. Insiders pointed out that the decline in turnover in the first half tier cities amplification, on the one hand due to the last traded base is too large, on the other hand soaring housing prices and mortgage crunch has also led to the real needs of the people can not afford to buy a house a house.

North of Guangzhou-Shenzhen surpassed three percent decline in first half turnover

This past June, the major cities have also surrendered the property market in the first half of this year's report card, but in the country as a whole the situation is not good grades, has been regarded as "Excellence," the first-tier cities achievement is particularly ugly.

As the real estate market, the most popular capital city of Beijing, the first half of this year, new residential subscription data is 2.76 million square meters (excluding affordable housing), compared to the same period last year, turnover of 5.3 million square meters of area decreased by 48%. Besides its turnover 73.8 billion compared to the first half of 2013 are down 38% 119 000 000 000. It is understood that 2.76 million square meters of half closing an area of Beijing, the lowest in nearly five years. From the second-hand housing , the first half 2014, Beijing second-hand housing transactions 44,500 units, the lowest since records net label.

Located in East China's Shanghai, the first half of newly built commercial housing sales area of ​​4.07 million square meters, compared to 5.915 million square meters in the first half of last year fell 31.2 percent, the same poor performance.

The same situation also appears in the Pearl River Delta, Guangzhou and Shenzhen body. Statistics show that the first half of this year, net signed deal Guangzhou area 3,829,000 square meters, compared to the first half of last year's turnover of 5.508 million square meters area of ​​1,679,000 square meters and less, a decrease of 30.5%. Guangzhou residential sales in the first half amounted to 57.35 billion yuan, compared to 18.23 billion yuan in the first half of last year, less money.

In addition, Shenzhen City Planning and Land Commission announced the Shenzhen property market "in the test results." In the first half, Shenzhen residential sales 15,133 units, 1,422,000 square meters, compared with the same period last year, a decline of up to 41.7%, 40%; monthly average turnover of 2,522 units, 237,000 square meters, are the lowest in four years value.

Turnover fell supply has increased dramatically

In the first half of this year fell sharply volume tier cities, not because the supply of the same decline. Instead, in the first half of this year, the supply of these cities on the rise.

Centaline Research Department data show that Beijing Built in the first half of 2014 rose housing supply. Up to now, Beijing Total inventory 80,844 units, which is the second in January 2013 after falling 80,000 units, more than a year later, Beijing stock return again to 80,000 units over the past 18 months to reach a new high.

In Shanghai, the first half of this year, the supply is also rising slightly. Data show that the first half of Shanghai total supply of new commodity housing was 5.26 million square meters, compared with 4.927 million square meters last year rose 3.9%. By Sunshine house edge network data can be seen in the first half of 2013 can be sold in Guangzhou city's new residential units for 46,000 units, while in the first half of this year to the end of June, Guangzhou salable new residential units for 54,000 units, an increase of a lot.

Statistics from the World Union lines, as of June 29, 2014, the city of Shenzhen Yishoufang salable area of ​​3,275,700 square meters, salable units for 34,201 units, is constantly increasing. Shenzhen by nearly eight weeks if the city's new weekly average speed of 565 sets of sales, the current new home sales potential digestion time was 15 months.

National turnover led lower tier cities

"2012-2013, a large real estate developers in the property market downturn has been aware of the relationship between supply and demand. Three massive supply of land resources and fourth tier cities and first-tier cities is so tight that a high-profile developers 'return to first-tier cities' into 2014 , rapid cooling property market. developers have found that first-tier cities than in the third and fourth tier cities also drop much. "create excellence, general manager of Guangzhou Real Estate Consulting Limited Zhao Zhuowen said.

Southern reporter learned that, with respect to the first-tier cities is often more than 30% of the volume decline, count the performance of the national market after the second and third tier cities but even better.

According to the National Bureau of Statistics released in mid-June data show that 1-May, the national real estate investment 3.0739 trillion yuan, an increase of 14.7% in nominal; nationwide housing sales area of 360.7 million square meters, representing a decrease of 7.8% only.

Classification according to the China Index Research Institute statistics, the first half of this year, the average monthly turnover of first-tier cities area of ​​510,000 square meters, up sharply down 31.4%, the largest decline in all types of cities; second-tier cities on behalf of the average monthly transaction size is 56 million square meters, down 15.5%; three lines represent the city in the first half the average monthly turnover of 22 million square meters, down 18.9%.

Average trading volume fell tier cities firmer

It is worth noting that the first-tier cities dismal turnover did not directly affect prices. The first half of Beijing's average transaction price of new residential 26,687 yuan / square meter, compared with the same period last year, up 18.86 percent. Shanghai average transaction price of new commodity housing 25,745 yuan / square meter, compared to last year's 23,342 yuan / square meter also rose 10.1%.

In the first half of this year, Guangzhou city's 11 district primary residential average price of 14,978 yuan / square meter, compared with last year's 13,723 yuan / square meter, up 9.1 percent. Shenzhen housing prices are not synchronized with the volume decline in the first half of the average transaction price of new homes in Shenzhen city of 23,498 yuan / square meter, an increase of 9.63%.

China Index Research Institute data show that the first-tier cities in the first half of the cumulative price index rose 2.64 percent, far lower than 8.47% a year earlier, but still in a rising trend; second and third tier cities in price by up to turn down, the cumulative decline in the first half were 1.10%, 0.88%.

Why the big decline in first-tier cities in volume?

Insiders pointed out that, in fact, is the largest city where the highest concentration of speculative capital, which is the most serious speculation, the largest local bubble blowing. For example, Japanese property bubble burst in the 1990s, Tokyo turnover fell even more serious, because compared to small cities, Tokyo speculation more serious, more foam, so down it even worse.

For the first half of the first-tier cities nationwide phenomenon led lower volume, radius of the property, chief market analyst Tang Ho Chi believes that with the base year decline related. "In fact, the first half of the deal is not very good, second and third tier cities fell from the beginning of last year, so year on year decline seems to be smaller; tier cities 'came through' the first half of this year was down last year's base is relatively large, so decline looks great. "he said.

Zhao Zhuowen believes tier cities real estate "fall" There are a number of reasons, the most important is the economic slowdown. "For example, Guangzhou's GDP growth dropped from 12% last year to 7.4% in the first quarter of this year, a significant impact. Other is real estate finance tightened, development loans and mortgages are directly affected, but the impact of intensified anti-corruption is also a great . "he said, turnover fell, investors can let us know what proportion of buyers and civil servants; prices fell, to let us know first-tier cities are also obvious bubble.


Han with real estate experts argue that first-tier cities housing prices rose too high, resulting in an effective purchase demand reduction. Afford all investment buyers, but they suffer purchase constraints, can not sell a house. And really just need buyers, and can not afford a house, which also led to the first half of first-tier cities Transaction sharp decline. "In addition, some second and third tier cities have relaxed market regulation policy and the implementation of first-tier cities are still tight. "he said, now has a modest adjustment to the first-tier cities in the timing of the purchase of the policy, if you wait until fall too much, come and let hopeless situation, investors it will not enter the market, can not stimulate turnover relax.

Zhao Zhuowen that, regardless of the economic slowdown or credit tightening, etc., no one is able to reverse in the short term, and therefore look forward to the second half on the property market warming, is unrealistic. "In accordance with normal market trends, real estate market in the next 2 - 3 years, clunker, unless the government is determined to save the city." Deng Hao said, for now look at the price of the dish if they wish, can be traded up, unwilling to lower prices are no longer marketable, put in place after the second half of the expected price, trading volume will hopefully pick up.