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China’s ‘Golden Era’ for Property Over, Vanke President Says

China Vanke Co. President Yu Liang
China Vanke Co. President Yu Liang. Photographer: Jerome Favre/Bloomberg

The “golden era” for China’s property market has passed, according to China Vanke Co., the nation’s biggest developer, which is shifting its focus to homes for owner occupiers rather than investors.

“The period in which everybody makes money out of property is gone,” President Yu Liang told reporters May 26 in Dongguan, a southern city in Guangdong province. “Vanke will take a cautiously optimistic approach to face the slowdown and target those buyers who need homes for self-use.”

The housing market threatens Premier Li Keqiang’s efforts to put the brakes on a slowdown in the world’s second-largest economy that is projected to grow at the weakest pace since 1990. Moody’s Investors Service revised its credit outlook for Chinese developers to negative from stable last week, while home sales slumped 10 percent in the first four months of this year amid tight credit, reversing last year’s 27 percent jump and prompting developers including Vanke to cut prices.

“He should have seen some signs since it’s indeed difficult to make money now compared with before,” said Dai Fang, a Shanghai-based analyst at Zheshang Securities Co. “Growth we’ve seen before is no longer possible and you won’t be seeing blossoms everywhere again,” he added, using a Chinese idiom to refer to the property boom seen in every city.

Price Cuts

Pressure on Chinese developers was underscored by the collapse of a developer in a city south of Shanghai in March. Moody’s forecasts year-on-year home sales growth will slow to at most 5 percent in the next 12 months, from 27 percent last year. Yu said China’s real estate market is still big enough and Vanke will keep residential property as its main business over the next 10 years.

The value of new homes sold in 2013 rose 27 percent from 2012 to 6.8 trillion yuan ($1.1 trillion), according to the National Bureau of Statistics.

While the company has offered promotions, including discounts for group purchases, “cutting prices will not solve every problem unlike in the past because that won’t help sales of some high-end homes,” Yu said. Developers including Vanke and Greentown China Holdings Ltd. have cut property prices since March to lure homebuyers, according to China Real Estate Information Corp.

‘Big Brother’

Vanke is interested in investing in industrial property and homes for the elderly, Yu said.

China’s new-home prices rose in April in the fewest cities in a year and a half, while home sales fell 18 percent from March, according to government data.

“The market is far from its big turning point,” Vanke’s board secretary, Tan Huajie, said at the same briefing. “As the big brother in the industry, we are responsible to alert risks, but it doesn’t mean we are bearish on the property market.”

The growth in the real estate industry will slow and the phase where “whoever buys makes money” is gone, even as the nation’s accelerating urbanization still promises bright prospects for the market, Vanke Chairman Wang Shi told Caixin, a financial news company, in an interview last month.

New construction has fallen 22 percent and sales, including commercial real estate, have slumped 7.8 percent this year.

While 12 of 18 economists say China has some oversupply of housing, only seven say the market is in a bubble state countrywide, according to a survey conducted from May 15 to May 20 by Bloomberg News. Half see a bubble in some cities, and a majority say the loosening of restrictions on home purchases and loans will be limited to a regional level.

Shares Rise

Vanke’s A-shares rose 3.4 percent to 8.45 yuan at the close of trading in Shenzhen, extending the rally this year to 5.2 percent. A gauge tracking Shanghai-traded developers rose 0.8 percent.

The developer, which has approval from regulators to convert China-traded B-shares to shares in Hong Kong, will be listed in the city’s stock exchange as soon as late June, Yu said. He said the company doesn’t have any financing plans after the listing.

The developer is seeking to exit the B-share market, which has languished after the nation opened its local-currency stock markets to foreign investors. The company has set June 3 as the last trading day of its B-shares.

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