Efforts to clamp down on China’s property market appear to be having an effect.
Transaction activity has clearly taken a hit in Tier-1 cities where the most strict measures have been enacted, while it remains ‘sturdy’ in Tier-2 cities where local governments have been more property-friendly, highlights Deutsche Bank’s Tony Tsang:
Sales retreat slightly after hitting new high of the year
Last week’s volume in 46 major cities dipped 12.8% WoW after touching record highs of the year the week before. Nevertheless, this was still the third-strongest week of the year. With more cities introducing city-specific restrictions, overall sales volume could soften further in the coming weeks. However, we still believe Tier-2 and -3 cities to be more resilient on the back of strong end-user demand.
Tier-1 cities: stricken by new tightening
Following the previous week’s gain of 17.8% WoW, the strength was reversed with volumes in Tier 1 cities suffering a 40.8% WoW decline during the week of Oct 18-24. In particular, Beijing, Shanghai and Guangzhou fell 27.2%, 6.7%, and 69.6% WoW respectively; while Shenzhen went against the trend and gained 39.5% WoW. The volume retreat in is in line with earlier government restrictions on home purchases, among other tightening measures. Guangzhou was particularly hit by new purchase restrictions announced. Total weekly volume dropped slightly below the level before property tightening in mid-April by 56.9% and leveled with the January 2010 level. Total Tier 1 city volume has accounted for an average of 22.6% of total volumes for the past four weeks.
Tier-2 and -3 cities: showing somewhat sturdy demand
Volume in Tier-2/3 cities slipped only 4.2% WoW, vs a 44.7% gain the week before, despite the new tightening measures. Overall volume is slightly below the peak level of mid-April but still 12% higher than the same period of 2009. Dalian, Guiyang and Bengbu registered the highest WoW growth of 163%, 107% and 77%, respectively. Key Tier-2 cities such as Chongqing and Chengdu rose 6% and 13% WoW respectively, while Wuhan and Nanjin fell 32% and 37% respectively.
Volumes could fall further as more cities announce tightening measures
A total of 14 cities have already announced restrictions on home purchases, but with varying degrees of strength. The Shenzhen and Nanjing versions are regarded as the strictest, banning all third-home purchases. In contrast, other cities such as Shanghai and Hangzhou have announced ‘softer’ measures. In summary, most cities allow a household (both local and non-locals) to purchase one additional residential unit, provided that they have one year of local tax and social security proof. Third-home mortgage purchases are generally banned and a 30% down payment requirement has been imposed for all first-home buyers.
Thus property companies with a focus on Tier 2 or 3 cities are the safer place to be given that ‘policy risk could lead to a hard landing’ for the market he says.
(Via Deutsche Bank, China Prop Weekly Monitor, Tony Tsang, 25 October 2010)