China May home price rise highlights policy dilemma
China’s home price rises slowed for a second straight month in May from the previous month, in a sign that Beijing’s attempts to bring stability to a frothy property market are having some effect.
However in year-on-year terms, prices rose at their fastest pace this year, highlighting the dilemma facing authorities looking to support an economy struggling with weak export demand and sluggish activity without resorting to tough measures that could risk a sharp slowdown in property, one of the few growth areas.
The government unveiled a fresh round of measures in March to try to cool the sector, but they were less stringent than market expectations and their implementation has been spotty across the country so far.
Liu Jianwei, a senior statistician at the National Bureau of Statistics (NBS), said that the easing pace of month-on-month gains was a sign of slowing momentum, but warned that more needed to be done.
“There are still many cities seeing home prices rising and the property tightening campaign should continue to focus on implementation,” Liu said in a statement accompanying the data.
Only Beijing has implemented a 20 per cent capital gains tax on pre-owned home sales required by the central government, and has also required developers of big homes, commercial and office buildings to finish construction of at least seven floors before applying for pre-sales of the projects.
Smaller cities, meanwhile, are more dependent on the property sector to raise revenue and often in hock with developers, have largely ignored the tax, according to media reports.
Average new home prices in 70 major Chinese cities rose 0.9 per cent in May from the previous month, easing from April’s month-on-month gains of 1 per cent, according to Reuters calculations from data released by the National Bureau of Statistics (NBS) on Tuesday.
Compared with a year ago, new home prices rose 6 per cent in May, the fifth consecutive rise and the sharpest since January 2011 when Reuters started to calculate the nationwide data.
New home prices in Beijing in May rose 11.8 per cent from a year earlier, compared with April’s year-on-year increase of 10.3 per cent. Shanghai prices in May were up 10.2 per cent from a year ago, versus 8.5 per cent annual growth in April.
Gains in May in both cities were the fastest since January 2011. Home prices rose month-on-month in 65 of 70 cities monitored by the NBS in May, down from 67 in April.
Real estate, which has direct influence on some 40 other business industries in China, appears to be the only bright sector. Recent data has shown weakness in exports and domestic activity.
The heated demand for properties is largely due to a lack of investment options for domestic investors and credit being channelled into real estate to seek quick returns rather than into production as exports and domestic demand slow.
Thus, China’s policymakers face a dilemma in regulating property: further relaxing monetary policy could mean home prices run out of control, but to press too hard against housing inflation risks damaging the broad economy.
“Rising property prices make it difficult for policymakers to loosen monetary policy, at least in the short term.” said Zhiwei Zhang, an economist at Nomura, in an email note.
“The outlook for property prices depends on the monetary policy stance over the next several months. If policy continues to tighten and M2 growth trends down, property prices will likely follow,” Zhang added.
The dilemma could get worse as analysts expect upward pressure on home prices to persist in the coming months due to rising land prices, supply shortages in key cities and relatively loose monetary policy.
The latest Reuters poll predicted an 8 percent rise in China’s house prices this year.
Official figures on June 9 showed Chinese property sales in May increased 28 per cent from a year earlier in area terms, moderating from a rise of 40 per cent in April, but still keeping a robust growth pace.
A recent buoyant land market in tier 1 cities – typically a prelude to home price rises – will reinforce market expectations that prices are still marching up.
Authorities in Shanghai last month sold a land parcel for 4.6 billion yuan (HK$5.8 million), a record high in the country’s financial hub.
“I don’t think the government will change its tightening stance on the property market even though the broad economy is changing,” said Chen Guoqiang, vice-chairman of China Real Estate Society.
China does not have an official index for nationwide home prices. Reuters started its weighted China home price index in January 2011 when the NBS stopped providing nationwide data, and instead only gave home price changes in 70 major cities.