These 4 Charts Perfectly Explain What's Going On In China's Real Estate Sector

Getty/China Photos

Chinese growth has been easing throughout 2014, driven by a weaker real estate and industrial investment, the latest Westpac BREE China Resources Quarterly says.

This first chart, showing the investment cycle of China’s main industries which in total are trending down, says everything.

But it gets worse. In the report there are another three charts which show what’s been happening in the Asian powerhouse’s real estate market.

Real estate makes up about a quarter of the country’s urban investment, is split about 70/30 between residential and non-residential, while state-owned organisations account for around 16% of the total. So it’s kind of a big deal.

“Real estate started the year in poor fashion and has continued in that vein, with housing and non-residential activity both in the doldrums,” the report said.

Real estate investment has been on a tear in the past few years but it, like the country’s growth it is tapering. Albeit off a big base.

“In year–ended terms it was expanding at a very modest 7.9% clip in the month of September, down from 12.5% in June and 22.3% in December 2013. That compares to 19.4% in June 2013 and 12.4% at the end of 2012,” the report says.

This chart shows in the 12 months to September housing prices got smoked across all regions – housing prices across the country have declined.

“The net balance of cities seeing monthly price depreciation has increased appreciably, to the point where the retrenchment is essentially universal, something that was not seen in the previous downswing,” the report says.

This chart shows the previous downswing in China’s housing prices as well as the sharp drop off experienced this year which Westpac said respondents to its MNI China Consumer Sentiment Survey are “now expressing considerable caution regarding the near term prospects of the market”.

Chinese authorities announced a support package in September aimed at propping up both supply and demand sides of its real estate market. It includes discounted mortgage rates, strong loan-to-value ratios and fewer restrictions on investors.

“Our view is that these moves will have a positive impact, but with the aggregate demand-supply position in housing closer to balance than in previous cycles, with pockets of material over-supply, the multiplier effect will be less powerful than in the past,” Westpac and BREE said in the report.

But here’s the kicker – The chart below shows housing starts and sales have both been falling for most of 2014. However, new builds have come back slightly after a weak first half – that’s a good thing for Australia because construction requires resources like steel.

“There are tentative signs of stability emerging following the nationwide support package announced on September 30, but it is too early to make any definitive judgement on the package’s efficacy,” the report says.

“We anticipate some improvement in 2015, but the gradient of ascent will be modest.

“In the background, we note that a renewed policy emphasis on urban renewal and public housing should help to revive activity in the under-the-radar off-market segment.”

Here’s the residential sales and new build chart.

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