Shares in Chinese property developers are getting hammered

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Shares in Chinese property developers are tumbling following the introduction of tougher housing market restrictions announced over the weekend.

According to Chinese state-backed news agency Xinhua, second-tier cities such as Xi’an, Chongqing, Nanchang, Nanning, Changsha, Guiyang, Shijiazhuang and Wuhan announced tighter housing controls over the weekend, including banning home sales within two to three years after purchases.

Since March, more than 40 cities have introduced similar bans.

Analysts told Xinhua that the ban on sales is an effective measure in fighting market speculation in smaller Chinese centres following the introduction of tighter buying restrictions in larger Chinese cities, known as tier-one cities, late last year.

As a result of the uncertainty, the CSI 300 real estate index was down in afternoon trade more than 4.3% to 8,321.79 points, extending its drop after hitting a near two-year high last week to nearly 10%.

Of the better-known names, shares in China Vanke and Poly Real Estate Group were down just over 5% and 5.4% respectively.

Shijiazhuang, capital of Hebei province in China’s north, has reportedly banned investors from selling newly bought homes for up to five years.

Changsha, an inland city north of Hong Kong, also announced that it would bar homeowners from buying a second property for up to three years from the time of their first home purchase, said Reuters. It also said that it would limit sales to non-residents of the city to one property per person.

The introduction of tighter restrictions over the weekend, on top of other measures, indicates that authorities are concerned that attempts to curb rapid price growth in tier one cities has seen speculative activity shift from larger to smaller cities in recent months.

Recent data released by China’s National Bureau of Statistics (NBS) seems to back this view with prices in second and third-tier Chinese cities rising significantly faster than larger centres since the beginning of the year, hinting that rather than curbing speculative activity across the nation’s property market they had merely transferred the problem to cities where buying curbs weren’t as strict.

Source: Commonwealth Bank

That was something Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank, warned could prompt policymakers to extend restrictions to smaller cities, especially given signs that mortgage lending continued to grow at a rapid pace in the first half of the year.

“The recent success of policymakers to reign in property price growth amongst China’s larger cities look set to extend to third-tier cities,” he wrote in a note released last month. “Mortgage lending has advanced around 24% year-on-year in first seven months of the year despite China’s central bank looking to cap mortgage loans.”