China home price

Gains in China new home prices point to stabilising market

Beijing is the only city that posts a decline while the slump in transaction volume in primary sector casts doubt on sustainability of recovery

PUBLISHED : Wednesday, 18 March, 2015, 6:00am
UPDATED : Saturday, 18 April, 2015, 6:06pm

All 10 cities except Beijing tracked by the SCMP-Creda index posted gains in new home prices last month from January, but their combined transaction volume was halved, throwing into doubt the sustainability of a nascent recovery in the property market.

A flood of new project launches weighed down prices in the capital by 12.31 per cent, while hundreds of thousands of residents left the city to reunite with parents or travel during the Lunar New Year, said China Real Estate Data Academy (Creda), a property consultancy.

"Prices will stabilise in March as the market may embrace a surge [in transactions] in anticipation of further monetary policy relaxation," said Creda dean Chen Sheng.

Other cities, including Shanghai, Guangzhou, Shenzhen, Tianjin, Chongqing, Wuhan in Hubei province, Nanjing in Jiangsu, Chengdu in Sichuan and Hangzhou in Zhejiang, enjoyed a price rise of 0.4 to 8.5 per cent. In January, prices only increased in Beijing and Shenzhen compared with December.

In year-on-year terms, seven cities saw price gains, led by Wuhan. But prices declined 15.38 per cent in Shenzhen, 7.72 per cent in Beijing and 6.5 per cent in Chengdu.

Meanwhile, transaction volumes tumbled across the board from January, led by a loss of 72.78 per cent in Shenzhen. The combined sales of new homes in the 10 cities slid 50.37 per cent.

"A rising number of homebuyers are waiting for the next interest rate cut, so they remain on the sidelines," Chen said.

As prices fall, housing affordability has improved. Chengdu was the most affordable last month since the South China Morning Post started to publish the index early last year. It cost a local family six years to buy a new home in the city, assuming they save every penny of their income.

Shenzhen replaced Beijing for the first time as the most unaffordable city, costing 18.6 years of family income. In Beijing, a family needed to save 16.7 years, while the ratio topped 19 when the index was first published in April last year.

Beijing has cut interest rates twice since November and lowered banks' required reserve ratio to pump liquidity into the slowing economy. Almost all but five Chinese cities have relaxed the heavy-handed home purchase restrictions since mid-2014.

However, speculation that the four first-tier cities - Beijing, Shanghai, Shenzhen and Guangzhou - will soon relax the controls has been rebuffed by officials repeatedly over the past few months.

Loosening policies warmed up the market in the last quarter of 2014. But activity weakened again as the year turned, fuelling expectations among developers that the outlook this year might not be as bright as anticipated earlier.

The top priority among developers is still to try every means, including the growing use of internet marketing, to sell down mounting inventories, which is crushing their profit margins.