Chinese property market sees effects of cooling measures just weeks after record price gains
National Bureau of Statistics says price growth fell in 15 top-tier cities, but analysts warn of speculative demand and housing affordability
Chinese housing prices softened in October after a new wave of government cooling measures, but analysts say concerns about an unsustainable property market continue.
A Bank of America Merrill Lynch report said on Monday that China’s property restrictions, including buying limits and increased down payment ratios introduced in late September and early October, have seen “initial success... in curbing speculative demand”.
As a result, there is less risk of further real estate tightening policies in the first quarter of 2017 and this may “help rationalise land prices,” Merrill Lynch analysts Karl Choi and Wenhan Chen said.
Signs of the tempered market were seen in recent National Bureau of Statistics (NBS) data highlighting slowing price growth for new community housing in the first half of October in 15 first and second-tier cities.
The numbers, from an unprecedented mid-month data release, show the price growth index declining on average by 2.5 percentage points. Property prices fell in the first half of October in Shenzhen and Chengdu by 0.3 per cent and 0.1 per cent respectively, though still rose by over 4 per cent in cities such as Zhengzhou and Wuxi.
“The data shows the rapid price gains ... have been curbed effectively,” said Liu Jianwei, a government economist at NBS.
Merrill Lynch’s Choi and Chen noted that the “atypical comments” from NBS were a good sign but they cautioned that the October data may not tell the entire story. The figures only show average price growth for new commodity homes, and may misleadingly compare performance over half a month to the full month of September, they said.
CBRE researchers said authorities will continue to closely regulate the property market by limiting speculative peer-to-peer lending to home buyers and by reducing housing supply.
“Lower tier cities with high inventory will continue to see the loosening of regulations, while upper tier cities where inventory is declining will see current rules remain in place,” CBRE said. “The growth of housing prices and total transaction volume may therefore be limited in the coming quarters.”
Chinese real estate prices have ballooned in recent months, with the rate of price growth the highest in more than seven years in September, according to Bloomberg data. Sixty three cities reported price gains for new homes in September, up from 37 cities one year ago.
In the secondary market, 60 cities reported price gains in September, up from 57 in August and 54 in March. Only seven cities saw price declines, according to NBS data.
House price momentum and “strong evidence of speculative demand” is concentrated near top-tier cities, according to Elliot Clarke, director and senior economist at Westpac Banking Corp.
“Elsewhere, demand is lacking,” Clarke said in a report.
This tier-one demand has sent residential land premiums in those cities up 113 per cent, reaching similar levels to 2007 before the global financial crisis and 2010 when the government had to step in with a 4 trillion yuan housing stimulus package, according to the CBRE report.
Additionally, China’s real estate debt market continues to face problems, including sustained risk for small developers in repaying their debts.
“China-listed developers’ total debts have expanded significantly from 1.34 trillion yuan in 2011 to 3.3 trillion yuan in 2015,” a CBRE statement said. “Numerous developers have delayed the maturity date of their bond repayments instead of alleviating debt obligations.”
Going forward, existing government cooling measures may dampen the housing market’s momentum, particularly “in light of declining buyer affordability”, Merrill Lynch said.
Escalating housing prices could also hurt the country’s services sector next year, according to Clarke.
“Chinese households remain willing to invest in property despite the higher cost, but doing so could crimp their ability and willingness to spend elsewhere.”