CHARTS: The epic recovery in house prices in China's largest cities

Photo: Kevin Frayer/Getty Images.

China’s property market has sprung back to life this year, boosted by lower interest rates, a relaxation in property purchase restrictions and, as is often the case in any Chinese market, an element of speculation.

Prices have surged, mirroring that seen in property turnover. As a result, property construction has also lifted, even with a glut of unsold housing inventory continuing to exist in smaller Chinese cities. Bulk commodity prices have also responded.

Out of nowhere, the market that was doing nothing for years is now the hottest in the country.

The chart below, supplied by Macquarie Research, shows the enormous acceleration in tier one city house prices — the largest in the country — which has subsequently filtered through to recent improvements in house prices in smaller tier two and three cities.

Led by prices in the southern metropolis of Shenzhen — the hottest housing market in the country — prices in tier one cities grew at an annual clip of around 25% in March, the fastest percentage increase in at least the past decade.

Amazing rates of growth that are likely to increase the risks of an equally large downturn in the years ahead.

Macquarie believes that the price gains reflect inventory pressures, rather than speculative buying which has been cited by other analysts.

As you would expect with the rapid increase in house prices in larger cities, the volume of housing transactions jackknifed at the start of the year, although the pace is now slowing.

Macquarie believes that the strong start to the year for sales is not sustainable, but believes it still bodes well for new starts and investment in the year ahead.

The bank believes that house prices may begin to drop in the first half of next year, although they do not expect nationwide curbs on property purchases to begin any time soon as has been seen in Shenzhen and Shanghai recently.

China’s National Bureau of Statistics will release urban fixed asset investment figures for April — including property construction figures — on May 14. That will be followed by new home prices data on May 18.

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