- New home prices in China rose by 1% in June, the fastest increase since October 2016. This was despite increasing restrictions on buying and selling that have been rolled out by policymakers in recent years.
- For new properties, prices rose in 63 of 70 cities monitored, the highest number since August 2016. For established homes, prices rose in the largest number of cities in over five years.
- In the past, policymakers have responded by introducing even tighter restrictions. However, on this occasion, Westpac thinks this time will be different.
There’s no stopping China’s housing market at present, even with tighter restrictions on buying and selling being gradually rolled out by policymakers.
According to China’s National Bureau of Statistics (NBS), new home prices increased by 1% in June, the largest increase since October 2016.
Prices also increased in 63 of the 70 cities monitored by the NBS, up from 61 in May, coinciding with steep losses in Chinese stocks in the first six months of the year.
It was the highest proportion since August 2016.
Prices for established properties rose in an even greater number of cities, lifting to levels not seen in over five years.
Almost everywhere you look, outside of China’s largest cities, prices are pushing higher, especially in small-and-mid sized centres.
Given the recent trends, seemingly defying the will of regulators who have been attempting to cool house prices for several years, it begs the question whether even tougher restrictions could be introduced in the period ahead before the next housing bubble begins to truly inflate.
While that could eventuate given prior form, Elliot Clarke, Senior Economist at Westpac thinks they won’t given the scale of recent gains and the deteriorating external environment facing China’s economy at present.
“While the breadth of gains is striking, their quantum remains relatively subdued compared to heights reached in 2015 and 2016,” he says.
“For new housing, prices in tier 2 are currently up 6.6% over the year, while in tier 3 they have risen 6.0%. Tier 1 house prices are, in contrast, broadly in line with their year ago levels after annual growth troughed at –1.0% in April.
“For existing housing, very similar outcomes have been seen — prices in tier 1 are unchanged and in tier 2 and tier 3 they are up 6.3% and 3.8% respectively.”
So the gains are far smaller than those seen in the past.
But, hang on, aren’t these gains already coming off a high base, meaning they’re still increasing from what were already high levels?
They are, but Clarke says that despite the risks of encouraging ever-greater levels of leverage, China needs its housing market to remain strong given threats facing other parts of the economy.
“Authorities are less likely to react to accelerating price growth in this instance given it is being seen in tier 2 and 3, where construction activity and wealth gains are desired, and because — in a macro sense — strength in residential construction is currently necessary to offset weakness in other key sectors, namely utilities and transport,” he says.
In a time of trade wars and deleveraging in China’s industrial sectors, China will likely to turn to its housing market as it has done so many times in the past.
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