The rapid slowdown in Chinese property price growth, in one chart

It’s not just Australia’s housing market slowing recently.

China, Australia’s largest trading partner and also the largest consumer of commodities globally, has also seen its housing market slow substantially over the past year, especially in large tier-one cities.

Here, look.

Source: Commonwealth Bank

From the Commonwealth Bank’s Mining and Energy Commodities Analyst, Vivek Dhar, it shows monthly movements in Chinese new home prices by size of city.

Tier one are the largest, with tier two and three progressively smaller in scale.

As Dhar explains, the slowdown in China, like Australia’s, largely reflects attempts from policymakers to slow what were rapidly increasing house prices in the previous two years.

Chinese policymakers look to have succeeded in slowing property price growth in China’s larger cities.

“The slowdown reflects the impact of stricter measures on purchasing property,” he says, noting it largely reflects the view from Chinese President Xi Jinping that “houses are built to be inhabited, not for speculation”.

Again, like what we’ve seen recently in Australia, it was to curb speculative activity in the housing market, something that was contributing to a build-up in financial stability risks.

“Chengdu, for example raised down-payment requirements for second homes. A number of cities went even further by capping the selling price of new properties,” says Dhar.

Clearly, based on the official data from China’s National Bureau of Statistics (NBS), it looks like those attempts to curb speculative activity are working in terms of limiting price growth.

“The moderation in new home price growth in 2017 will give some relief to policymakers who were facing the prospect of an uncontrollable property bubble,” Dhar says.

“Chinese policymakers look to have succeeded in slowing property price growth in China’s larger cities.”

As the chart shows, what started in larger Chinese cities now appears to be spreading to other parts of China, driven by new restrictions to slow price growth in smaller centres.

Along with a slowdown in Chinese construction activity last year — growing by just 3% in volume terms — Dhar says that points to the likelihood that policymakers will refrain from delivering further restrictions, at least for the moment.

“China’s new home sales and construction volumes should remain fairly,” he says in relation to the outlook for the year ahead,” he says.

“We don’t think authorities will favour policy that could weigh even more heavily on China’s property sector.”

However, while he thinks that “should keep growth in the property sector fairly neutral for now”, Dhar says that strong growth in mortgage lending does pose a risk that more stringent lending standards will be introduced.

“Despite the policy clampdown on property prices, mortgage lending is up over 20% [over the] year,” he says.

“That could mean that attempts by China’s central bank to cap mortgage loans will need more enforcement.”

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