China: Housing price growth distribution stable, investment data soft overall - Westpac

Elliot Clarke, Research Analyst at Westpac, explains that each year, Chinese data for January and February is affected by the variable timing of the lunar new year holidays, but with this year’s celebrations occurring in mid February, this month’s data could be biased and overall, tier 1 pricing continues to be held back by authorities, while gains in tier 2 and beyond remain robust.

Key Quotes

“In the month of February, 44 of the 70 cities reported price gains for new homes, a little below the prior six month’s average of 50. The existing market meanwhile bounced in February to be a touch above its six-month average.”

“Since their September 2016 peak, new home prices in Shenzhen have fallen just 4.8%, a fraction of the prior twelve month’s 35% gain; prices in Beijing and Shanghai have been broadly unchanged. For existing housing, all three cities have reported little change in prices since September 2016.”

“Looking ahead, our base expectation is that tier 1 markets will continue to mark time. Wealth is a substantial support, but the will of authorities is stronger.”

“In tier 2 and 3, new home price gains are continuing at a solid pace. Versus the flat annual rate for tier 1, tier 2 and 3 prices are rising at a 6% pace. For the existing market, the story is very similar, with overall gains of just below 6% and 5% for tier 2 and 3 respectively.”

“Turning to the investment partials, we now have data for January and February 2018. In year-to-date terms, fixed asset investment in real estate has started on a stronger footing that in 2017 (10%yr versus 9%yr) and indeed the end of 2017 (7.0%yr). It is worth noting however that construction activity was likely aided by the later timing of LNY in 2017, hence the figure is potentially biased up.”

“In contrast, growth in projects under construction and new starts both remain at the low end of the historic range and, as yet, show no signs of an acceleration.”

“Tier 1 sales (and therefore inventory) have been most affected by the actions of authorities. It is then surprising that floor space under construction is still growing faster in tier 1 than elsewhere. Tier 2 remains the clear underperformer.”