Chongqing’s rising home prices unlikely to slow as developers tap demand from non-residents

Residential sales in Chongqing have softened according to government data but the trend of rising home prices in the western Chinese city is unlikely to end as developers ask higher prices for their upcoming new launches.

There were 47,627 units sold in January, down about 25.6 per cent from the peak in December last year, the city’s official data shows. Real estate agents said sales activity also slowed down in February.

But analysts such as Jasmine Ma, head of strategic consulting at JLL in Chongqing, said the decline in sales volume didn’t mean the market has been softening

“Transaction volume dropped because the unsold units were snapped up by buyers by the end of last year,” said Ma.

“I am also looking to buy over the weekend , but developers are out of stock,” she said.

The decline came after the city government issued a series of policies aimed at cooling off the sizzling property market. Developers must report specific prices of new units, including land cost, construction and taxes, when they apply for pre-sales permits from local authorities, and this cost breakdown must be spelled out in marketing literature, according to guidelines published on January 9.

The housing authority will ask developers to provide an explanation if prices are considered “unreasonable,” according to the policy.

To tighten pre-sale regulations on private housing, the government also requires developers to settle all financing that is secured by the project’s land use rights before they can register for a pre-sale permit. In addition, developers are not allowed to obtain secured financing for projects that have been granted pre-sale status.

“The government so far has not imposed any home purchase policy that restricts the number of home buying by residents,” said Ma, adding that authorities don’t want to see a sharp correction in home values as land sale revenue remains a major source of income for the city.

“Demand for units in good locations or the city centre far exceeds the supply,” said 29-year-old Chongqing native Liu Ji, who works at an advertisement agency.

“There’s no way you could manage to snap up a unit in a good location these days,” she said.

All major developments in Chongqing have seen price rises after the Lunar New Year. Even units in Ba Nan district, a suburban county far from the city centre, saw home prices double over the past year, Liu said.

Analysts said many property buyers in first tier cities, which have been under home purchase restrictions, were lured to Chongqing but that just pushed up home prices in the city starting in the second half of last year, and the market really started to heat up in the last quarter of 2016.

In the Yuzhong central business district, prices of residential properties along the Yangtze River more than doubled in a year amid interest from investors outside Chongqing.

Mainland developer Sunac China Holdings generated strong sales at the end of last year from its riverside project Sunac Hastin Avenue, where large units were seeing transaction prices of about 30,000 yuan (US$4,357) per square metre. This compares with the price range of between 12,000 yuan and 13,000 yuan per sq metre when the project was first launched at the beginning of last year.

Chongqing’s housing prices had risen only 12 per cent over the most recent five year period, the 21st Century Business Herald reported in January, citing official data. That’s despite a robust Chongqing economy which grew 11 per cent year on year in 2015 and 10.7 per cent in 2016, according to data from the National Bureau of Statistics (NBS).

In January, prices in the city rose 1.3 per cent month on month and 7.7 per cent when compared with January 2016. The growth was even faster when compared with the 1.1 per cent month-on-month rise in December and 1.2 per cent month-on-month growth in November.

“Many buyers were from Shanghai. They came to our sales office to sign the purchase agreement just after landing [at the airport]. Most of them were still carrying their luggage,” said Lok Leung, a salesman for Shui On Land in Chongqing. Shui On is gearing up to sell the latest phase of its residential development, Chongqing Tiandi located in Yuzhong District, with asking prices slightly higher than the previous phase sold at the end of last year.

The sudden rebound in property follows the December promotion of Chongqing mayor Huang Qifan to China’s rubber stamp legislature. Huang had been a hawk on residential property prices in the metropolis of 31 million people, adding more land supply to prevent developers from price gouging.

Ma of JLL expects that home prices in Chongqing will continue to rise because of the existing price gap between the city and other second tier cities such as Nanjing, the capital of China’s eastern Jiangsu province, and Jinan in Shandong province.

“We will see how prices will go up when developers start launching more new projects later this month,” Ma said.