China’s housing market is slowing down, potentially creating a headwind for commodity prices in the period ahead.
According to data released by China’s National Bureau of Statistics (NBS) on Friday, new property prices grew by just 0.4% in July, a steep deceleration on the 0.7% gain one month earlier.
As a result, price growth over the past year slowed to 9.7%, the weakest increase since July last year.
According to Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank, the national slowdown largely reflects a pronounced deceleration in price growth in the nation’s largest cities.
“Chinese policymakers look to have succeeded in slowing property price growth in China’s larger cities,” he says, noting that it “reflects the impact of stricter measures on purchasing property”.
Over the month, prices in China’s tier-one cities — the largest of the large — fell fractionally while those in mid-sized tier-two centres grew by just 0.2%, well below the levels reported throughout the course of 2016.
While Dhar admits the rapid slowdown in larger centres will be welcomed by policymakers who were facing the prospect of an “uncontrollable property bubble”, he notes that prices in tier-three cities — the smallest of all those monitored by the NBS — continued to accelerate, growing by 0.8% from a month earlier.
Although this likely reflects ongoing attempts from policymakers to reduce unsold housing inventory in these cities, Dhar cautions that continued price strength could see buying restrictions extended to smaller centres to reduce what the People’s Bank of China deems to be growing “regional bubble risks”.
“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 says. “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.”
Should policymakers attempt to cool these markets as they have done in larger centres, Dhar says this could dampen new property construction volumes and commodity prices in the months ahead.
“New home sales slowed significantly in July, while construction volumes contracted,” he says. “The data suggests that China’s commodity demand faces downside risks in coming months.”