Unsold china homes up 190pc

Hangzhou, China Photo: Bluntschli

Data from the National Bureau of Statistics reveals that unsold residential floor space rose to 561.6 million square metres in August 2014, a rise of 1.68 per cent from the previous month and a rise of 190 per cent from four years ago.

Indeed, the volume of unsold real estate in the country has grown for the past 29 months in a row, reaching an overhang that would take 10 months to clear, if sales continued at their current pace.

The situation has arisen following consistent attempts by the Chinese authorities to cool the country's housing market and deter investors from speculative purchasing.

"The policy is aimed at curbing property investment demand and speculation. But now, people are hesitant in buying flats because property prices are falling," Du Jinsong, an analyst at Credit Suisse, tells the South China Morning Post.

At the same time, construction has seen completions on residential properties climb, with 68.1 per cent of investment funding residential development, up 12.4 per cent from a year ago.

While the lower-tier cities are plagued by oversupply, though, the uneven nature of the Chinese real estate market means that in the top cities, the problem is exactly the opposite: supply is low but house prices are too high for buyers.

In response, the government has now relaxed its restrictions on second home purchases, although sales are still sluggish.

Developers, meanwhile, are trying to offload their supply of new build units, slashing prices to attract buyers: in July, prices fell in almost all of the 70 metropolises tracked by the government's official statistics. Sales, meanwhile, have fallen 10 per cent in the first eight months of 2014 compared to 2013, according to the bureau.

"The property market only took off after 2001 when housing was privatised." notes Linda Yueh, Chief business correspondent at the BBC. "In the decade or so since then, the Chinese housing market has grown exponentially. Starting from a low base, price rises aren't entirely surprising. But, by the gauge of affordability, the ratios of house prices to annual household income are among the highest in the world in major cities such as Beijing and Shanghai where it's over 10 times.

"By way of comparison, for pricey cities like London and New York, the ratio is below 10."

"Moderating house prices is always challenging," she adds, "and there is certainly a lot at stake as China attempts to engineer a soft landing for its property sector."