China has announced another property crackdown as prices begin to bubble

Jackson Lowen/Construction Photography/Avalon/Getty ImagesChinese workers stand in front of the Eiffel tower replica at Tiandu Cheng, a Parisian-themed residential development in Hangzhou, China.
  • China’s property market is starting to bubble again, reversing the slowdown seen over the past two years.
  • New home prices recorded the largest gain in nearly a year in May, led by smaller centres. An increasing number of cities also saw positive price growth during the month.
  • China’s government has announced a renewed crackdown on “irregularities” in 30 Chinese cities, including Beijing and Shanghai.

After a sharp slowdown in late 2017 and early 2018, China’s housing market is starting to heat up again.

According to data released by China’s National Bureau of Statistics (NBS), new home prices rose by 0.7% in May, up from 0.5% in April, leaving the change on a year earlier at 4.7%.

The monthly increase was the fastest in nearly a year, and extended the stretch of consecutive gains to 38 months.

An increasing number of cities also recorded price growth over the month, lifting to 61 out of the 70 cities tracked by the NBS, up from 58 in April.

As seen in the chart below from the Commonwealth Bank, rather than being led by China’s largest tier-one cities, the strength in May was primarily concentrated in smaller tier-two and three cities.

Commonwealth Bank

After slowing for much of the past year, all the signs suggest China’s housing market is starting to bubble again, even with the introduction of tighter buying and selling restrictions in many cities, be they large or small.

The latest developments have not gone unnoticed by Chinese regulators, either.

According to Reuters, China’s government announced on Thursday that it would renew efforts to crack down on property irregularities in 30 major cities, mobilising powers from seven major Chinese government agencies in a concerted effort to rein in rising prices.

A post published on China’s Housing Ministry website said the crackdown, which would be carried out by other government entities such as the Ministry of Public Security as well as the banking and insurance regulators, would focus on stemming speculation, and target illegal agencies, developers and fake advertisements.

It said irregularities, included manipulating prices, deliberately holding off sales, illegally providing loans for downpayment and publishing false price information that misled buyers, according to Reuters.

The Housing Ministry said cities such as Beijing and Shanghai, and provincial capitals such as Wuhan and Chengdu, and smaller centres such as Yichang and Foshan, would be among the 30 that will be scrutinised by regulators.

News of the latest crackdown to rein in rampant price growth coincides with a sharp selloff in Chinese listed real estate developers this week.

The CSI 300 Real Estate Index has plunged 14.9% from Monday’s high, extending its slide from January 24 to 36.4%.

An ugly bear market if there ever was one.

Along with the renewed crackdown announced by the Housing Ministry, China’s National Development and Reform Commission (NRDC) announced that it will restrict real estate developers from using funds raised via foreign debt for real estate investments, warning that overseas debt issuance to fund new projects had been growing too quickly.

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