China’s July home price growth cools as real estate rally in smaller cities loses steam

Aggregate prices of China’s newly built homes cooled in July for the fourth consecutive month, with a price rally easing among smaller cities for the first time as a concerted effort by the government to bring housing affordability under control showed its effectiveness.

Besides cooling prices, sales volume also moderated as draconian borrowing rules prevented more people from qualifying for mortgages in an increasing number of cities.

The sales value of new homes rose 4.3 per cent in July to 779 billion yuan (US$117 billion) from the same period last year, the slowest annual pace in more than two years, compared with the 26.4 per cent jump in June, according calculations by the South China Morning Post based on data from National Bureau of Statistics (NBS). Home sales area growth saw a steeper slowdown in July, rising just 0.26 per cent year on year compared to 18.4 per cent in June.

China’s new home sales growth in July drops to slowest pace in two years

New home prices rose in 58 of the 70 cities tracked by the government, fewer than the 60 that reported gains in June, according to the statistics bureau. Nine cities reported falling prices, more than the six that reported declines in June.

Among the 15 “focus cities” closely monitored by NBS, five saw month on month price gains，within 0.4 per cent, down from six in June.

Prices of new homes in Shenzhen fell 0.2 per cent last month compared with June, while prices declined 0.l per cent in Beijing and remained unchanged in Shanghai.

The air was taken out of a six-month price rally among China’s third and fourth-tier cities, the biggest driver of the country’s real estate boom in the first half, when investors shifted their capital to undervalued areas.

Luoyang, a city of 6.5 million people and the former capital during the Eastern Han dynasty in 25 AD, showed the biggest slowdown in the residential property market, with year-on-year prices edging up 0.7 per cent in July, compared with a 2.4 per cent jump in June.

“While policy tightening effects continued to show up in 15 focus cities, price momentum appears to have started easing in lower tier-cities,” Grace Ng, senior China economist for J.P. Morgan, wrote in a note after the data release.

This trend is reinforcing J.P.Morgan’s expectation for real estate investment growth to moderate to low single digits in the second-half. “In particular, real estate developers could feel increasing difficulties in their funding conditions toward the end of the year, considering restrictions in accessing bank loans, bonds and shadow credit,” Ng said.