New home prices in China’s tier-1 cities rise at faster pace as relief policies, easing of pandemic controls boost market

Prices of new residential units in the mainland’s four biggest, wealthiest cities increased 0.4 per cent in May, compared to 0.2 per cent in April
However, the broader market is struggling, with the cost of new homes in 70 cities across the country sliding 0.2 per cent in May

China property

Lam Ka-sing

Published: 6:16pm, 16 Jun 2022

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Home prices in China’s biggest, wealthiest cities increased at a faster pace in May, thanks to the relaxation of market curbs.

The wider market remains under immense pressure, however, official figures show.

Prices of new residential units in the four tier-one cities increased 0.4 per cent on average, compared to 0.2 per cent in April, rising for a fifth straight month, according to National Bureau of Statistics data released on Thursday.

“With the intensive deployment of relief policies, especially the relaxation of pandemic controls, the improvement in liquidity has a more significant effect on buying power,” said Li Yujia, senior economist at the Guangdong Urban and Rural Planning and Design Institute, a policy advisory body.

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The People’s Bank of China (PBOC) cut the five-year loan prime rate from 4.6 per cent to 4.45 per cent last month, the largest reduction on record and the second this year. The move was one of several designed to boost liquidity and help bolster a faltering economy hit by the country’s worst coronavirus outbreaks in two years.

Guangzhou and Shenzhen enjoyed the biggest increases in their house prices, each rising by 0.5 per cent. Beijing’s rose less than in the previous month, while Shanghai’s remained unchanged at zero.

In contrast, the average prices of new units in third-tier cities – generally smaller and less affluent, according to mainland China’s categorisation system – slid for the ninth consecutive month.

Over all, the average cost of new homes in 70 cities across the country slid 0.2 per cent in May, a slight improvement on the 0.3 per cent decline in the previous month. The number of cities that saw prices fall decreased, while the number of cities with prices up increased.

Li expects the market for new homes to rebound in the next two months. The secondary market saw price declines widen, with 53 out of 70 cities witnessing decreases because of a higher number of listings, and discounts on new homes.

Other analysts are less optimistic. The market for new homes will not bottom out until the fourth quarter of this year, according to Yan Yuejin, research director at Shanghai-based E-house China Research and Development Institute.

Notably, though China’s metrics for new homes sold, land purchases, developers’ funding and property development investment improved in May compared to April, they continued to decline on a year-to-date basis, according to Yan’s analysis of National Bureau of Statistics data released on Wednesday.

Yan said policy relaxations may help boost the Shanghai property market, helping it outperform the rest of the country later.

Property prices in tier-one cities will outperform other cities, with a moderate growth of 2 to 3 per cent, while prices in tier-two and tier-three cities will decline by up to 2 per cent on the year in 2022, according to Knight Frank.

The market is concerned about the delivery and quality of new developments as well as the wider economy, said Andy Lee, CEO of Centaline China. Homebuyers are worried about a potential slide in homes prices, he said.

Entry-level homes for new buyers are seeing better sales around Shanghai, added Lee.

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