China property market saw ‘strong recovery’ before new government cooling measures
Home prices gained an average of 8.9 per cent between June 2015 and June 2016, according to Urban Land Institute survey
China’s housing market has made a robust recovery in the past 15 months on expansionary monetary policies, a new report says, but some analysts predict growth will slow as new cooling measures take effect.
The annual mainland real estate market survey by the Urban Land Institute (ULI) — conducted with industry leaders in 33 of the largest Chinese cities — said official growth policies helped property prices surge in the year to June by an average of around 8.9 per cent, amid “significant reductions” in supply. Median new home inventory fell to just over six months for most cities.
And property prices will probably “continue to rise unless the government intervenes,” the report said.
“Expansionary monetary policy as well as policies on home-purchase restrictions and down payment ratios clearly contributed to the housing market turnaround, but perhaps too drastically with some markets, including Shenzhen, Nanjing and Suzhou overheating as a result,” Kenneth Rhee, the report’s author and ULI chief representative for the mainland, said in a press release.
There will be more restrictions coming in the near future. Those restrictions will be a lot more surgical
Market watchers have long warned of the risk of a property bubble in China. Residential home prices slid in 2013 and 2014, but the government’s heavy-handed approach to boosting the markets has led to overheating in recent months.
China has already taken new measures to address this with new restrictions including increased down payment ratios and limits on property purchasing in around 20 cities in the past few weeks.
Rhee said at the launch of the ULI report on Tuesday that the government will continue introducing restrictions, some of which may differ even between districts within a city.
“There will be more restrictions coming in the near future,” he said. “Those restrictions will be a lot more surgical.”
Rhee’s report also found that industry focus has shifted in the past year from residential to industrial properties, while results for the office, retail, and logistics sectors have been mixed.
Meanwhile, the development of high-speed railways has been “an increasingly important factor” for the market, particularly for the “growing number of tier 2 and tier 3 cities near major economic hubs such as the Yangtze River Delta.”
What if there’s a pop of the bubble? That will be a source of instability
Shanghai remains the leading Chinese city for investment and development prospects, according to ULI, topping the list ahead of Shenzhen, Beijing, and Guangzhou.
But Henry Chin, head of research for Asia Pacific at CBRE, said China is not going to see “rosy growth going forward.”
The two big risks for the market are the valuation of the renminbi, which fell to a six-year low this week, and capital outflow from the mainland as people seek to invest overseas, he said.
While the country’s property market cycle is “getting very short,” there will definitely be investment opportunities in China’s residential housing sector in the next year, according to Charade Poon, director at M3 Capital.
“If you are saying whether there is opportunity to buy in the residential market right now, I would say maybe its not bad timing to get the dry powder ready,” he said.
But he warned about the sustainability of the buyer base, adding that the effects of China’s cooling measures “will overshoot” as they have in the past.
“What if there’s a pop of the bubble?” he said. “That will be a source of instability.”
Chin, however, believes the property bubble is unlikely to burst.
“Social stability is the number one agenda for the Communist Party. The next thing they don’t want to see is the property price collapse,” he said. “[There is] also stronger demand for the tier 1 and tier 1.5 cities. I just don’t see [a] market-wide collapse.”
