Pick up in China housing data sustained: Westpac's Elliot Clarke
GUEST OBSERVER
The latest available China housing data reports that the pick up in house price momentum in August was sustained in September, across both new and existing markets.
For new housing, 63 cities reported price gains in the month, broadly in line with August’s 64 and the recent peak of 65 in April 2016. Emphasising the breadth of the improvement in 2016, a year ago only 37 cities reported price gains.
The secondary market improved further in September with 60 cities reporting price gains in the month. That contrasts to 57 in August 2016; 54 in March 2016; and 40 a year ago. Only 7 cities are currently experiencing price declines – the best result for this metric since end-2013.
Investigating annual price growth by tier, 2016’s key themes endured in September. Price growth of near 30 percent/yr continues to be seen on average in tier- 1 cities, across both new (29.4 percent/yr) and existing (33.0 percent/yr) markets.
Also, the tier-2 averages gained further momentum, from 9.1 percent/yr to 11.1 percent/yr for new and 7.6 percent/yr to 9.0 percent/yr for existing. Meanwhile, tier-3 price growth remains fickle, new and existing house prices up 6.6 percent/yr and 4.4 percent/yr respectively.
As we have previously highlighted, the most interesting aspect of the price data is not the tier averages, but rather the city-by-city detail.
Herein we continue to see strong evidence of speculative demand, with a wide spectrum of price activity by city.
In tier-1, against the 29 percent/yr average result for new housing: Shenzhen price growth has slowed from near 63%yr in April to 34 percent/yr currently; over the same period, price growth has accelerated from around 17 percent/yr to 27 percent/yr and 23 percent/yr respectively in Beijing and Guangzhou. Shanghai has been stable near 30 percent/yr.
In tier-2, against the 11 percent/yr average: Hefei and Nanjing are currently seeing price growth of 46 percent/yr and 40 percent/yr, while many other cities such as Dalian are broadly flat year on year.
Similarly in tier-3, against its 6.6 percent/yr average for new housing, annual price growth varies between 47 percent/yr in Xiamen to –4.5 percent/yr in Jinzhou.
Clearly, cities with close ties to tier-1 and/or new industry are attracting investors (and owner occupiers); but elsewhere, demand is lacking.
Given the disparate conditions across the nation, the divergence between sales and starts is likely to persist as significant inventory of unsold new homes lingers in many jurisdictions.
Indeed, even in areas where price growth has been strong, developers have cause to manage new supply carefully so as to see prices sustained at high levels. This is particularly true if authorities impose further restrictions in ‘overheated’ markets.
As a consequence, while it has improved through 2016, growth in real estate investment is likely to remain soft relative to history, providing only modest support to manufacturing and commodity prices.
As a final point, note that the strong price gains witnessed over the past year pose a risk to services activity into 2017. Chinese households remain willing to invest in property despite the higher cost, but doing so could crimp their ability and willingness to spend elsewhere. This is particularly true if job creation in the construction sector and related areas disappoints.
Elliot Clarke is senior economist, Westpac and can be contacted here.