China: Authorities power continuing to be seen in property market - Westpac

Elliot Clarke, Research Analyst at Westpac, explains that July was a repeat of June, with Chinese authorities’ power continuing to be seen, most obviously in tier 1 as micro management of each market remains the focus, balancing out sales and price activity across the three tiers.

Key Quotes

“56 cities reported price gains in the month of July while only 9 reported price declines. For the existing market, the breadth of price growth was very similar, 54 cities seeing gains and 11 a decline. As such, across new and existing markets, price gains remain broad based.”

“The result of active micro-management of each city, tier 1 new home price growth has decelerated from 31%yr in April 2016 to 8%yr. In that time, Shenzhen, where price growth was most rapid, has seen growth decline from 63%yr to just 1%yr. Since its September peak, Shenzhen is the only tier 1 city to have experienced price declines (–3%), though Beijing and Shanghai are flat.”

“Across the outer tiers, annual price growth in tier 2 has slowed from 12%yr in November to 8%yr currently, but that is still stronger than back in April 2016, when the annual pace of growth peaked in tier 1 cities.”

“For tier 3, July was the first month since March 2015 where annual price growth deteriorated, and that was only by 0.1ppts. At over 9%yr, tier 3 is now experiencing the strongest price growth.”

“Tier 3 includes a great variety of cities, some close to tier 1 locales and others well away; hence it is important to recognise that the above growth rate is not being experienced everywhere. The range actually spans from 1%yr to 19%yr.”

“The above figures are for new housing, but the narrative is very similar for the existing market. The one stand-out difference is that, for existing homes, price growth has held up much better in tier 1 (11%yr). Arguably new housing has been the focus for authorities, so this result makes sense.”

“From the sales; starts and under construction detail, there is enough evidence to suggest that moderate growth in new construction will be seen ahead, but that we are unlikely to see an acceleration. Activity is being spread across the country, but it is evident that developers are now responding more to low inventory in tier 1 and, to a lesser extent, tier 3 by accelerating construction.”