The Strategist

Real estate sales in China keep growing

06/14/2017 - 15:50

Housing sales in China increased in May compared with the previous month, despite the recent introduction of stringent restrictive measures.

Mstyslav Chernov
Mstyslav Chernov
In May, housing sales increased by 12.6% in monetary terms compared to the same period of the previous year, The Wall Street Journal reports basing on data published on Wednesday by the National Bureau of Statistics. In January-May, housing sales increased by 15.3% compared to the same period last year and 16.1% from January to April.

Meanwhile, developers decided to invest in a number of new projects.

Investments in real estate, including commercial and residential real estate, slowed to 8.8% during the first five months of the year compared to the previous year. Investments grew by 9.1% over the period from January to April.

The pace of construction has also slowed down, having increased by 9.5% compared to the same period last year from January to May. This correlates with an increase of 11.1% in the first four months of the year.

Housing prices in China have been growing in most cities since October 2016, which indicates that buyers have tried to get ahead of any further restrictions on the purchase of real estate.

The Chinese authorities pledged to enforce strict restrictions in most of the cities of the first and second tiers in order to prevent inflating the housing market bubble and trying to clean up the surplus of unsold homes in small urban centers. Since at least 64 cities announced new or stricter restrictions on the purchase of real estate, some of the demand might have come from buyers who flocked to the market, fearing that they will not be able to make a purchase in the future.

"Restrictions on the purchase can lead to some panic purchases", said a real estate analyst at China Real Estate Information Corp. consulting company. According to him, buyers now are lashed by the new restrictions, so the demand for real estate is quite explainable. 

Dozens of Chinese cities have pursued a stricter policy aimed at curbing price increases after unprecedentedly severe restrictions were imposed in Beijing. So, the initial installment for a mortgage on buying a second apartment was raised to 60 percent in the Chinese capital.
At the same time, the People's Bank of China called on commercial banks to strengthen management of mortgage risks and take measures against such phenomena as fake divorces. Some spouses dare to fake a divorce to circumvent the requirements for payment of a high initial mortgage fee.

Taking into account adoption of harsh measures to cool the real estate market, analysts expect that housing prices will continue to stabilize in the coming months. More stringent measures will be taken in connection with the April increase in prices for apartments in some cities of the third tier.

"Measures to cool the real estate market, adopted by the Chinese government, began to yield results", commented Yan Yuejin, a senior researcher at E-house China R & D Institute. He stressed that it is necessary to take additional measures to prevent jumps in house prices in a number of third-tier cities.

Zhang Dawei, a senior analyst at Centaline Property, also noted this trend in third-tier cities. "For example, the city of Tangshan, Hebei Province /North China/, was in the lead among 70 large and medium cities in the country for high monthly growth in house prices, which is associated with a low base price and a side effect from investment activities in the areas around Beijing", he said.

According to his forecast, a strict control system aimed at stabilizing housing prices will be introduced in a greater number of cities. In the future, high demand for housing will move from the big cities to the cities of the third and fourth tier.