Econintersect: Prices for new homes are surging in the four major metro markets that the Chinese governemnt has designated as “first-tier”. The year-over-year increases were all above 15% and two of the four above 20%. Across the country new home prices rose is 69 of the 70 markets measured by the goverment. The “top-tier” markets are Shenzhen (+21%), Guangzhou (+21%), Shanghai +(18%) and Beijing (+16%). According to Bloomberg, Shenzhen led the gains with the biggest one year price rise in almost three years.
China’s efforts to cool the surging housing market appeared to have mede headway in 2012 as prices moderated to show little change nationally for the year, as this graph from a report by the Milken Institute shows (data through year-end 2012):
But the price rise of 2013 actually has accelerated from the rate seen 2010 and 2011 and was more like the dramatic surge in 2009. This has raised concerns about housing affordability.
Yao Wei, China economist at Societe Generale SA in Hong Kong told Bloomberg:
“Home prices in major cities have already become unaffordable; the impact of the local-level property measures is not very strong, we’ve seen similar policies before. The central government is treating cities differently, but they will still take nationwide actions if home prices are rising too quickly.”
Hong Kong-based Dariusz Kowalczyk, an economist and strategist at Credit Agricole CIB told Bloomberg:
“The data runs contrary to policy objectives and is likely to trigger a fresh round of real estate market curbs. We expect higher down-payment ratios in the every near term and a hike in mortgage lending rates in coming months.”
Other sources quoted by Bloomberg indicated that price increases may continue in the top-tier markets because of international exposure but that other Chinese markets should have “relatively stable” prices next year.
Some are concerned that China is in a housing bubble, like Pauline Chiou of CNN. She quotes Xu Si Tao, China Director of the Economist Intelligence Unit:
“The problem is Chinese people have very few investment vehicles. They’ve lost trust in the stock market so they turn to real estate. The central leadership needs to make bold steps in financial reforms to give citizens more options to invest their money.”
A CNN video from 07 November summarizes the problems.
Some others are not concerned about China’s rapidly increasing housing prices. In October Junheng Li wrote in MarketWatch:
The booming Chinese property market is largely supported by the non-stationary fundamentals of rapid real GDP growth, wage inflation, growth of private wealth, and urbanization. Another fundamental driving this growth is the absence of attractive investment alternatives. Despite the growth of wealth management products (WMPs), the asset menu available to most Chinese investors is restricted: Most investors can access only WMPs, deposits with regulated rates, domestic stocks of companies with poor governance and transparency, and property.
Li feels that only if restrictions on moving capital out of China were eased would the housing market there suffer.
- China Home Prices Rose in November as Shenzhen Led Increases (Bonnie Cao, Bloomberg News, 18 December 2013)
- China’s Housing Market: Is a Bubble About to Burst? (James R. Barth, Michael Lea, and Tong Li, Milken Institute, December 2012)
- China’s crazy property bubble (Pauline Chiou, CNN, 07 November 2013)
- Why China’s property market isn’t in a bubble (Junheng Li, MarketWatch, The Wall Street Journal, 10 October 2013)