House prices in China’s largest cities have posted another insane rise

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Chinese new home prices continued to accelerate last moth according to data released by China’s National Bureau of Statics on Monday.

Nationally, new home prices increased by 4.9% in the 12 months to March, the fastest year-on-year increase seen since May 2014.


Continuing the theme seen since last year, almost all of the strength was concentrated in large tier-one cities, particularly in the financial centres of Shenzhen and Shanghai.

In the southern metropolis of Shenzhen, prices rose by a further 3.7% during March, taking the year-on-year gain to a eye-watering 61.6%.

Prices in the national financial capital — Shanghai — jumped by 3.6%, leaving gains over the past two months at 25.0%.

In Beijing — China’s capital — prices increased by 16% from March 2015, outpacing gains of 15.2% and 6.8% in Guangzhou and Tianjin.

Despite the strength in China’s largest and most expensive housing markets, that trend was not replicated across smaller Chinese cities.

“Price rises among cities still showed big differences, said Liu Jianwei, a statistician at the NBS. “Cities with big rises were concentrated in the first-tier and, in part, the hot tier-two cities. Their growth is much faster than other cities, with the rest of the second-tier and third-tier cities relatively stable.”

The enormous price acceleration in larger cities has been fueled by a combination of government incentives to encourage housing investment, lower interest rates, an acceleration in new bank lending and lack of investment alternatives elsewhere.

Though the steps were implemented to help clear mounting stocks of unsold housing inventory in smaller Chinese cities, the measures have been most effective in spurring on gains in China’s largest housing markets, fanning massive waves of speculative buying that have all the hallmarks of a bubble.

In an attempt to slow house price gains in Shenzhen and Shanghai, policymakers in both cities announced a slew of measures in late March to quell rampant levels of speculation, upping deposit requirements for home buyers and banning some institutions from lending for housing investment.

After the figures reported for today, the question that has to be pondered is whether the tighter restrictions on housing investment will make a difference in these markets.

To many, the horse has already bolted, with something more substantial required to reduce what is undoubtedly adding to financial risks.