China property update: Westpac's Elliot Clarke

China property update: Westpac's Elliot Clarke
China property update: Westpac's Elliot Clarke

GUEST OBSERVER 

In July, China tier-1 property prices saw a further moderation in the pace of annual price growth; in tier-2 and tier-3, growth (again) inched higher, remaining at a much lower level than tier-1.

For new housing, 51 cities reported price gains in the month of July, down from 55 in June and a peak of 65 in April. But that is still well up on the number of cities reporting monthly gains a year ago (30 in July 2015). 16 cities reported monthly price declines, although that is also better than July 2015’s 29 cities.

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China property update: Westpac's Elliot Clarke

 

The secondary market has not seen as strong an improvement over the past year, a net 51 cities reporting monthly gains in July versus 41 a year ago and a peak of 54 four months ago (in March). 12 cities are currently experiencing price declines, compared to 17 a year ago.

Splitting the 70 cities into the three development tiers, tier-1 continues to experience a robust pace of price growth, an average of 27.0 percent/yr for new housing and 29.3 percent/yr for the secondary market. Versus April’s peaks of 31.5%yr and 36.1%yr, that is still best characterised as a modest deceleration.

China property update: Westpac's Elliot Clarke

Within this tier, a normalisation is continuing:

Shenzhen new property price growth has slowed from 62.5 percent/yr in April to (a still very strong) 40.9 percent/yr; meanwhile, Shanghai price growth has plateaued circa 28 percent/yr, as has Beijing and Guangzhou (albeit nearer 20 percent/yr).

Similar trends are apparent in the established or secondary markets: Shenzhen slowing from 60.6 percent/yr in March to 33.9 percent/yr currently, and Beijing from 37.3 percent/yr in April to 32.1 percent/yr; Shanghai and Guangzhou price growth has been broadly unchanged in recent months, respectively 30 percent/yr and 20 percent/yr.

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China property update: Westpac's Elliot Clarke

 

Moving on to the less developed and wealthy tier-2 cities, new and established housing saw annual price growth of 7.8 percent/yr and 6.7 percent/yr in July. Both markets still remain in an uptrend, albeit a very modest one.

This is even more the case in tier-3, where new and secondary house prices have risen just 3.8 percent/yr and 2.4 percent/yr over the past year.

Clearly activity is concentrated in the most established and wealthy markets, where there is likely to be a greater speculative element. The problem is that these are not the cities with the greatest growth potential.

China property update: Westpac's Elliot Clarke 

Further on aggregate activity, we note finally that momentum in housing sales and starts has already turned down.

The outlook for real estate investment in late-2016 and into 2017 is fragile and unlikely to provide a significant contribution to aggregate growth.

ELLIOT CLARKE is senior economist, Westpac and can be contacted here.
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China Property market

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