China developer survey: Tier 3 cities left behind – Standard Chartered

CDSI retreated to 48.7 in H2 mainly due to a sharp sentiment deterioration in Tier 3 cities. Developers in Tier 1 and 2 cities remain optimistic on sales and new home prices in these cities in H2. Policy easing expectations stay strong, while financing conditions remain favourable, Standard Chartered's economists report.

Land acquisition appetite has declined

"Our proprietary semi-annual China Developers Sentiment Index (CDSI) edged down to 48.7 in H2, after registering a seven-year high of 55.3 in H1. The survey indicated a greater divergence in developer expectations between higher-tier and lower-tier cities. The headline CDSI for Tier 1 cities jumped to 72 and that for Tier 2 cities stayed high at 57.9. Meanwhile, the CDSI for Tier 3 cities slumped to a three-year low of 35.9 on expectations of falling sales, prices and construction activity."

"On the supply side, only developers in Tier 1 cities plan to increase new starts and construction area in H2. Land acquisition appetite weakened across city tiers mainly due to financial constraints. On the demand side, 60% of surveyed developers in Tier 1 and 2 cities expect an increase in sales in H2, supported by upgrading demand and policy measures. While new home price expectations remain positive among Tier 1 and 2 city developers, nearly 70% of all respondents expect secondary-market home prices to fall. Months of inventory (inventory/sales) remained stable in H1; however, developers see slower destocking in H2."

"While credit conditions remain favourable, the proportion of respondents expecting further easing declined from H1. Off-balance-sheet lending became more difficult in H1 and could become harder in H2. Meanwhile, bond financing may turn easier in H2. Policy expectations remain high among developers. 30% of our surveyed developers have been contacted by acquirers and started the unsold home acquisition process."