China new home prices increase in March led by smaller cities

China’s new home prices growth rose in March led by the smaller cities, despite the government’s two-year campaign to cool the housing market.

New home prices, excluding government-subsidised housing, increased in 55 of the 70 cities tracked in March, compared with 44 in February, the National Bureau of Statistics said. New home prices dropped in 10 cities, down from 16 in February.

China’s February residential real estate prices show signs of cooling, as fewer cities post gains

New home prices in Beijing, Shanghai and Guangzhou all rose in March, the first time in months, though the increase was minimal. Prices in Shenzhen, however, dropped 0.1 per cent.

“The government’s stringent property curbs, including direct price control, have actually added to the new home short supply in top cities and incentivised people to grab a home, underlining the paradox of government control,” said Joe Zhou, head of China research at JLL.

Even as price momentum picked up, China’s residential property sales by area slowed considerably, to 2.6 per cent year on year growth in March, compared to the 11 per cent a year earlier.

East China, the most prosperous part of the country where real estate activity is also the most active, saw home sales slump 7.3 per cent in the first quarter from a year ago, which analysts attributed to falling new supply.

The third- and fourth-tier cities accounted for 70 per cent of China’s property sales, according to China Real Estate Information, an independent third-party property price guide platform.

Zhou said he expected a reversal of sales pattern this year compared with last year.

“Last year the first-tier cities experienced a hard year due to the heightened policy curbs while the vast third and fourth-tier cities performed surprisingly well and saved China’s overall property sales.

“This year the momentum in lower tier cities may come to an end as the previous round of ferocious buying has overdrawn on the demand; but in first-tier cities many projects this year have won sales approval from the government, so the burst of new supply will boost sales, while prices won’t jump because of the government price controls,” he said.

A typical example is Shanghai, where a spate of new housing projects have opened for pre-sale this month after a year-long supply vacuum. The prices are lower than normal and applicants far outnumber available units.