China’s housing market to remain robust in 2017, says Citigroup

China’s housing market will remain robust next year, despite already hitting new highs in 2016 as the central government moved to maintain market sentiment while clearing an oversupply of units in smaller cities, according to Citigroup.

“Unsold stock will only be cut if home prices keep rising, so there’s no doubt the physical market will keep thriving in 2017,” Oscar Choi, head of Asia-Pacific property at Citi Research, told a real estate conference in Hong Kong.

Choi and his team have been named as best property analysts for the past seven years by Institutional Investor magazine.

Nationwide property sales have grown by a record 40 per cent so far in 2016, with home and land prices in China’s first- and second- tier cities, such as Shanghai and Shenzhen, going through the roof.

The performances have fueled speculation that liquidity in the market may be tightened soon to slow down the increases, but Choi said there has been no sign of that yet.

“What I have seen is five or six banks sometimes chasing one developer to offer it financing services, after land purchases. That won’t happen if they receive any internal guidance from the central bank,” Choi said.

Shanghai has seen new home prices jump 34 per cent in the past 12 months. Transaction volumes by floor area also soared 93 per cent in the week ending August 28, setting a five-month record, amid rumours that mortgage rules were about to be tightened this month.

Shanghai’s housing authorities have already denied they are considering new mortgage restrictions.

Ivan Ko, chairman of China Real Estate Chamber of Commerce Hong Kong and International Chapter, echoed Citi’s views at the conference on Wednesday.

Ko said Beijing, Shanghai and Shenzhen are all now recognised as international metropolises, and will continue to attract global talent and investors, which will in turn drive the housing market.

Although home prices are high, he added, he said he thinks they are still reasonable.

After six interest rate cuts since last 2014, liquidity has been abundant across China, and much of it has been poured into the property market, pushing up both developers’ borrowings to buy land and personal mortgage levels for home buying.

The latest central bank data showed almost all new mainland loans taken out in July were for home mortgages.

But some analysts do think the good times are unlikely to be sustained, given the increasing loan risks being taken on by the banking sector.

“Home prices have grown too fast and the banks have become too reliant on their mortgage business,” said Nicole Wong, CLSA’s regional head of property research.

She is certain the central government will crack down on lending in first- and second- tier cities to avoid further risk in the banking system.

S&P Global Ratings also expects China’s property sector to slow over the next 12 months, as a result of a tapering off in the effects of supportive government policies, and expects price rises to start slowing, after rising consistently since the second half of 2015.