China’s property market, having been stuck in the doldrums following years of overbuilding, has risen from the ashes in recent months.
Home buying restrictions have been eased, mortgage rates have fallen and a fresh wave of credit has sloshed into the sector, leading to some eye-watering price gains in some of China’s largest cities.
Underlining just how potent the mix has been in stimulating activity in the sector, and to a degree speculative forces, Chinese property sales have been on a tear in early 2016.
The increase in sales is no better demonstrated that in the chart below, supplied by CBA’s mining and energy commodities analyst, Vivek Dhar.
It shows the amount of floor space sold in China each and every month, comparing the figures to those seen in prior years. There’s clearly been a rapid acceleration in the past two months:
According to Dhar, citing data from China’s National Bureau of Statistics, sales volumes in April came in at 117 million square metres, representing an increase of 44.1% on the same month a year earlier.
To put that figure into perspective, that equates to 93,600 Olympic-sized swimming pools worth of property sales just in April alone.
Big numbers for this time of year based on historic norms, and following an even larger increase in March.
As a result of the surge in sales volumes, Dhar notes that floor space completed and floor spaced started also accelerated, something of an anomaly given years of unsold housing supply that continues to plague markets in many smaller Chinese cities.
Dhar, like others, questions whether this trend will continue beyond the short term given unfavourable market fundamentals.
“Momentum remains in China’s property sector, resisting market concerns that high inventories should dampen both price and volume growth,” says Dhar.
“While data from China’s National Bureau of Statistics suggest that housing inventories as a ratio to consumption have normalised in tier 1 cities, inventory levels are still elevated in tier 2 cities and below.”
Dhar believes that “the importance of price and volume growth in China’s lower tier cities cannot be understated” when it comes to the outlook for bulk commodity prices.
“These cities accounted for 80-90% of China’s construction volumes following China’s stimulus in 2008-2009. As such, they were pivotal in driving global commodity demand and prices higher,” he says.
Although he admits “the outlook of China’s property sector remains relatively more upbeat”, something that may underpin commodity prices “around current levels for a while longer”, Dhar believes that growth in Chinese debt levels will be play a crucial role in determining whether the rebound in property sales and construction, and as a by-product commodity demand, will continue in the period ahead.
“The key determinant here is total debt growth, which further accelerated in April,” says Dhar.
“As policy makers in China reign in debt growth, we will likely see a weaker property market emerge in 2H16. We still forecast falling commodity prices and a slowdown in China’s property sector later this year.”
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