November 14, 2019 / 2:05 AM / 22 days ago

China's October property investment, sales growth at three-month low

BEIJING (Reuters) - China’s property investment and sales growth both eased to a three-month low in October, suggesting a critical pillar of the economy is softening, but new construction surged in a sign developers are rushing to promote sales.

FILE PHOTO: Residential buildings under construction are seen in Jinpu New District in Dalian, Liaoning province, China March 19, 2018. China Daily via REUTERS/File Photo

Some analysts say overall signs of weakening in the property sector could give provincial governments an excuse to loosen tightening curbs as economic growth slows to near 30-year lows.

Property investment is a key growth driver for China. A robust housing market has helped counter a slowdown in the manufacturing sector as a 16-month trade war with the United States slashed profits and investments for factories.

Real estate investment in October grew 8.8% from a year earlier, the slowest pace since July, down from September’s 10.5% expansion, according to Reuters calculations based on National Bureau of Statistics (NBS) data on Thursday.

For January-October, property investment rose 10.3% from a year earlier, versus a 9.7% gain in the same period last year and 10.5% in the first nine months.

The downbeat readings aligned with worse-than-expected factory activity contraction and steepest producer inflation in over three years reported last month.

“Not only were last month’s data weak, but further weakness lurks ahead. Real estate is primed for a further moderation as financing to the sector is being squeezed by a regulatory crackdown,” Martin Lynge Rasmussen, China economist at Capital Economics, said in a note.

NEW CONSTRUCTION STARTS JUMP

Property sales by floor area, a key barometer of demand, rose 1.9% on year in October, also the slowest since July and lower than September’s 2.9% growth, Reuters calculations showed.

That compared with a 3.1% sales drop seen in October last year.

For the 10-month period, sales increased 0.1% on an annual basis, recovering marginally from a 0.1% drop in the first nine months.

The weakness in October, which is traditionally a high season for new home sales and dubbed “Golden September and Silver October”, was in line with sluggish transactions in smaller cities. 

October's property transactions fell 8% on-year in 25 major tier-two and tier-three cities, data from private research firm CRIC showed. bit.ly/2pWsodz

Developers may continue to face pressure on sales as costs for buyers increase amid steadily rising home prices.

The average mortgage rate for first home purchases posted its fifth month-on-month growth in October, although the uptick was smaller compared with September's reading, according to a market report cited by state-backed Economic Information Daily. bit.ly/370Ug0I

Household loans, mostly mortgages, fell to 421 billion yuan ($60.2 billion) in October from 755 billion yuan in September, central bank data showed.

Bucking the bearish trend, however, October saw new construction starts measured by floor area soaring to its highest in more than a year, up 23.2% from a year earlier versus a 6.7% rise in September, Reuters calculations showed.

Some analysts say that reflects developers’ rush to launch more projects in a bid for quicker returns on sales.

Funds raised by China’s property developers increased 7% year-on-year for the 10-month period, slightly lower than a 7.1% gain in January-September, official data showed.

Beijing has stepped up a crackdown on speculative property investment and tightened the window for debt financing instruments to curb frothy capital flows to the housing sector.

Moody’s said in October that liquidity remains adequate for most rated Chinese property developers despite tighter financing controls, but refinancing risk will likely increase for weaker developers because of short-term debt and high exposure to trust loans.

($1 = 6.9941 Chinese yuan)

Additional reporting by Roxanne Liu, Editing by Jacqueline Wong

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