Chinese home prices are suddenly accelerating again

Photo by China Photos/Getty Images

After decelerating sharply late last year after the implementation of government restrictions to cool housing market activity, new home prices in China are now rising again.

And that’s raising concern among some analysts that the government is losing its ability to curb speculative activity within the marketplace at present, potentially creating additional financial stability risks.

According to calculations from Reuters, new home prices nationally grew by 0.3% in February, a small if not significant increase on the 0.2% gain reported in January.

China’s National Bureau of Statistics (NBS) said that prices increased in 56 of the 70 cities tracked, up from 45 in January.

As seen in the chart below from the Commonwealth Bank, price gains were led by smaller Chinese cities in February, classified by the NBS as tier-three or lower.

Elsewhere prices in large tier-one cities rose by 0.05%, following a similar decline in January, while those in medium-sized tier-two centres declined at a slower pace than a month before.

Source: Commonwealth Bank

Despite the mixed performance in February, the Commonwealth Bank’s mining and energy commodities analyst Vivek Dhar says the re-acceleration in new home prices raises concerns that Chinese policy is becoming increasingly ineffective at keeping a lid on property prices.

“Mortgage lending advanced 24.6% year-on-year in February despite China‚Äôs central bank looking to cap mortgage loans and promising to ‘strictly limit’ the flow of credit into speculative property purchases,” says Dhar.

Perhaps in response to the February report, several Chinese cities announced tighter measures to cool market activity over the weekend, says Dhar.

“Beijing increased down-payment requirements by 10 percentage points for second homes to between 60-80%. Other cities like Guangzhou, Qingdao, Nanjing and Changsha also tightened property purchasing measures,” he said.

Developments in Chinese property markets — particularly in smaller cities — are seen as crucial in determining the outlook for Chinese commodity demand given the majority of residential construction activity occurs in smaller Chinese centres.

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