China’s property market, having been in the doldrums for much of the past year, has shown signs of life in recent months.
Led by property price increases and an acceleration in sales in larger tier-one cities, the prospects for the national property market, along with overall economic growth, appear to be improving.
In a note released overnight, ANZ greater China economists Li-Gang Liu and Unias Li share that view, although they note that the recovery for China’s property market will be “long and strenuous”.
Here’s their analysis on recent developments within the property market, and why they believe a nationwide recovery is still months away.
“After 11 consecutive months of falling prices, residential property market in China has started to show signs of improvement. On a monthly basis, property prices in 29 cities stabilised or increased in May, compared with 21 cities in the previous month. Notably, home prices in all first-tier cities recorded monthly increases in May, thanks to a set of property easing measures since mid-2014. Specifically, local governments become more supportive to the property sector and they have reduced down payment requirement for second homes for investment purpose and also relaxed the rules for residents to borrow from the government subsidised housing provident fund.
While signs of improvement raises hope for a recovery in property market, further analyses of the data in April suggest that the recovery will be long and strenuous. The inventory overhang remains high for second and third-tier cities that require around 15 months and 21 months to digest, respectively, although first-tier cities’ inventories have returned to historical average. Notably, Shenzhen’s residential housing inventories have remained at about 7 months, much lower than its average of 15 months since the beginning of last year.”
The chart below reveals the number of cities that recorded month-on-month increases in property prices, or no change overall, is slowly starting to increase. As Liu and Li noted, the increase has been led by larger tier-one cities such as Beijing, Shanghai, Shenzhen and Guangzhou.
If a recover does occur Liu and Li believe it will likely have implications for Chinese economic growth in the second half of the year.
“As the real economic activities remain sluggish, the warm-up of property sector offers hope for a modest rebound in economic growth in Q3. Historically, a one percentage point increase in property prices contributed to around 0.2 percentage point increase in GDP growth.”
With Chinese GDP growth slowing to a six year low in the first quarter of 2015, any acceleration in economic activity will be greatly welcomed, particularly from Australia.