China’s housing frenzy starts to calm

Posted on October 21, 2016

House price growth in China’s major cities is starting to come down from its peak, with official data released on Friday suggesting restrictions on house purchases appear to be having some effect.

In the year to August prices rose more than 30 per cent in several cities. Since then, 23 cities have introduced or strengthened measures to lower demand, including restrictions on who can buy second or third homes and increases in the minimum downpayment required for mortgages.

The cooling measures have led to slowdown in price growth in major cities, according to the data from the National Statistics Bureau. The NBS conducted its first-ever half-month survey to gauge the effects of cooling measures, most of which were introduced during the early October national holiday.

Although price growth accelerated to 11.2 per cent year-on-year in September, according to the Reuters nationwide index, price growth started to slow in the first half of October in 15 major cities surveyed by the NBS.

“I’m not worried about the market slowing,” said a 26-year-old recent graduate who bought her first home in Shanghai in June, and did not want to be named. “It’s for me to live in. I’m not a properly speculator.”

The market value of her house has already increased by more than a third. Houses in the top three cities of Shanghai, Beijing and Shenzhen, which have booming local economies, are widely seen as safe bets.

“The [ruling Communist] party wants to control what they perceive to be a property bubble, a large part of which has been fuelled by mortgage growth,” said Jonas Short, Beijing head of investment bank NSBO. “We expect banks will curb mortgage lending in the coming months.”

Mortgage lending is at its highest ever level, with outstanding loans rising 30 per cent year-on-year in the second quarter.

Prices in surveyed cities in the first half of October grew less than 4.4 per cent month-on-month, a deceleration from price growth of more than 8 per cent in September.

“The results show that as a result of location-specific measures … the housing market has undergone vigorous changes,” said Liu Jianwei, an NBS statistician, in a statement. “The momentum that led to overly rapid rises in house prices has been restrained and house price growth has stabilised.”

The price data are backed up by sales data gathered through local property bureaux by NSBO China. According to NSBO, sales volumes in cities that introduced tightening measures fell 10 per cent month-on-month.

Tightening in the major cities has pushed buyers into smaller cities, said Mr Short. Sales in cities without tightening measures rose 42 per cent month-on-month in the first half of October.

“These were very early steps for cooling [the property market],” said Rosealea Yao, property analyst at Gavekal Dragonomics, an economics consultancy. “Sales will go down first but there will be a lag before construction goes down.”

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