China: Robust price growth to continue in most cities - Westpac

In June 2017, Chinese authorities’ power was seen to full effect, both in tier 1 and across the rest of the nation as micro management of each city market remains the focus, allowing robust price growth to continue in most cities as tier 1 is reined in, according to Elliot Clarke, Research Analyst at Westpac.

Key Quotes

“Notably, 60 cities reported price gains in the month of June as only 6 reported price declines. For the existing market, the breadth of price growth was very similar, 60 cities seeing gains and just 9 a decline. For both markets, gains remain as broad based as at prior cycle peaks.”

“The result of careful micro-management of individual city markets, tier 1 new home price growth has decelerated from 31%yr to 10%yr. In that time, Shenzhen, where price growth was most rapid, has seen annual growth decline from 63%yr to just 3%yr. The other tier 1 cities also continue to slow.”

“Across the outer tiers, price growth has strengthened to around 9%yr; that compares to 5%yr and 2%yr respectively for tier 2 and 3 back in April 2016. Price growth in tier 2 looks to have peaked, at 12%yr in November 2016, but tier 3 is still edging higher. (Note the above figures are for the new home market).”

“Developers look to be taking a very cautious approach to new projects.”

“Growth in sales and completions continues to trend lower, while there has been no noticeable pick up in the stock of apartments ‘under construction’. Further, after improving in late-2016, annual growth in housing starts has shown no additional momentum in recent months and is modest relative to history.”

“Unsurprisingly, sales in tier 1 cities have been hardest hit by the restrictions on purchases – LVR limits are particularly stringent in these regions. However, growth in floor space ‘under construction’ has recently begun to trend higher from a low base, indicating there is still demand for ‘high-end’ supply.”

“Inventory detail suggests available stock across tier 1 and tier 3 is historically low, warranting an increase in new construction. And, from the land sales data, it is clear that developers remain in a strong position. Banking land now and then gradually adding to supply across all three tiers in future periods looks to be their intent.”