China Property:Qingdao tour takeaways:inventory clearance taking place
Inventory clearance in the city area is better than expected
We hosted a property tour in Qingdao, visiting various property projects andmeeting with local experts and sales teams. We found that the pace ofinventory clearance in the city area is better than we expected. According tosales staff and experts, the inventory period in the city area as of end-May wasslightly higher than the historical average and the ASP has increased by thelow teens so far this year. The high inventory in the city is attributed to countyareas with slower sales and lower ASPs, which drag down the overall ASP inthe city. As in the other cities we recently visited, market participants believeliquidity from banks is the key to sales performance for the rest of the year.
Stable prices in city areas
Sales in the secondary market peaked in March 2016, when sales volume wasmore than double that of a normal month. However, the prices in the projectswe visited have not shown strong growth, unlike other core Tier 2 cities withstrong sales volume. An expert from Lianjia attributed the pricing to the localeconomy’s reliance on traditional, rather than new, industries; therefore,personal income does not grow quickly. Moreover, the hukou policy in the city,as in other Tier 2 cities, is very tight: in order to obtain a hukou in the city,people must own a property unit with GFA of more than 100sqm with a fullyrepaid mortgage or make full payment upon purchase. Also, the populationinflow is relatively tight – 6,000 non-locals may be introduced into the city viaits talent program.
Inventory period shortened; slightly above historical average
The overall inventory level in the city is about 22-24 months, which is alsoaffected by the county area, where we see high inventory levels and slowersales. According to Lianjia, the inventory period in the city area is about 14-16months, better than the 19-month period in 2012. The current inventory level isslightly higher than the historical average of 12-14 months for the city centerarea. However, in Jimo (the suburban area), the inventory has not been clearedfor more than five years. In Jiaozhou, many villas and elder care projectsremain unsold. The inventory period for Jiaonan District is about 25 months.
Banks remain supportive of the property marketLike most of the other cities we have visited recently, banks are offering 15%discounts on the interest for first-home mortgages, with one to two weeks forapproval. Based on our communication with sales staff, we found that bankshave remained supportive of the projects since late 2015. However, they havebecome more prudent on mortgage approvals, with longer approval times.
Hence, sales in the city have been normalizing since May.