Housing speculation likely to be more muted and more monitored in 2017

Mainland residents are likely to adopt a more cautious approach to property investment in 2017, despite expectation of further price hikes, according to international firms monitoring the market into the new year.

James Macdonald, director of China research at Savills, said second-tier cities – which abound with properties at discounted prices – might still attract cash-rich homebuyers before local authorities step up their efforts to curb any future buying spree.

“Some investors may be looking to buy properties at discount prices in some second-tier cities, expecting prices to rise in a very short period of time,” said

“But the governments is equally expected to react quickly this year if they see increasing volumes,” said Macdonald.

Home prices in China’s top-tier cities – Beijing, Shanghai, Guangzhou, and Shenzhen – have experienced hefty jumps in prices since mid-2015, prompting local governments to roll out austerity measures, such as further limiting purchases of apartments and heightening minimum mortgage down payments, to rein in surging prices.

It is largely expected that home price growth will slow in most of the mainland’s developed cities this year, due to the cooling measures.

But analysts predict that ambitious investors, commonly known in the industry as “housing speculators”, are still expected to set their sights on lower-tier cities, where prices remain attractive.

“Some investors will be happy to invest in second-tier cities such as Suzhou, Nanjing or Hangzhou as they know the markets well,” Macdonald said.

“Others may be looking at cities such as Chongqing because they believe there is little risk involved.”

The mainland’s property sector has been regarded as the crown jewel of the Chinese economy, contributing heavily to maintaining double-digit growth, as prices kept rising over the past two decades.

The government has regularly stepped in to cool periodic bubbles when prices grew at breakneck pace.

In Shanghai, home prices have more than doubled since the middle of 2015 with the average transaction price of an apartment hitting 100,000 yuan (HK$118,300) per square metre in the fourth quarter of 2016, according to Savills.

Nationally, however, the overheated property sector is being seen more as a threat to social order as lower earning urban residents or rural migrants relocating to the big cities for work have find they can’t afford anywhere to live.

Wealthier individuals are now also shying away from a Chinese lacklustre stock market, which has left millions of retail investors with paper losses following a crash in stock prices in June, 2015.

Recent tightened foreign exchange controls have also blocked high-net-worth individuals from moving assets abroad, to hedge against a depreciating yuan.

“We now have increasing amounts of idle cash sitting about the country just waiting to be spent on potentially lucrative properties, which could drive up the real estate market,” said Betty Wong, an executive director at Colliers International.

“But with many governments putting blocks and restrictions on home buying, housing prices in major cities are likely to grow, but at a slower pace, this year.”

Colliers , however, rules out any possibility that home prices in first-tier cities will drop in 2017, as demand still far-outstrips supply.