Shanghai takes the top spot for price growth in October as the markets looses steam

Overview

27 out of 70 cities recorded month-on-month (MoM) increases in first-hand commodity residential prices in October, compared to 39 cities in September. During the same month, ten cities recorded no change, while 33 cities recorded a decrease in prices.

The five cities with the largest increases in October were: Shanghai (2.1%), Xiamen (1.3%), Nanjing (1.3%), Shenzhen (1.2%) and Beijing (0.8%).

The five cities with the largest decreases in October were Yueyang (-1.0%), Xiangyang (-0.7%), Dalian (-0.7%), Hohhot (-0.7%), and Beihai (-0.5%).

Average prices for the 70 cities increased 0.07% in October, the sixth consecutive MoM increase for the 70 city index - though a marked slow down compared to September figures. Average prices are currently down 1.18% year-on-year (YoY), yet remain up 9.08% compared to December 2010 when the index first started.

First-tier city analysis

First-tier cities, once again, outperformed the rest of the market though growth rates slowed significantly to 1.23% in October from 2.1% in September - primarily on the back of rapidly slowing growth in Shenzhen. Shenzhen has grown at a spectacular rate, having increased 40.5% over the last 12 month period, with prices now up 72.1% compared to Dec 2010. Home-buyer appetite has been tempered by the fact that property prices are now so high that some purchasers are turning to second-tier cities in close proximity to Shenzhen as an alternative.

Shanghai was the only first-tier city to see acceleration in price growth in October, growing 2.1% in October up from 1.9% the previous month - bringing YoY growth to 12.7%.

First-tier cities continue to have some of the lowest unsold inventory levels in light of recent transaction volumes. While they continue to attract new business establishment and expansions supporting job creation, migration and wage growth, they are also attracting wealth from the rest of the country. All of the above have and will continue to lead to support in terms of residential prices.

City tier analysis

All tiers of cities recorded slowing rates of growth or larger declines than the previous month. Fourth- and fifth-tier cities continued to record declines in October, falling 0.22% and 0.10% respectively, bringing YoY decrease to 3.71% and 4.25% respectively.

Leading growth cities

The three best performing second-tier cities in October were Xiamen (1.3%), Nanjing (1.3%) and Zhengzhou (0.6%). Xiamen, despite having dropped out of the spotlight in the first half of the year, has regained some of its previous lustre with growth rates picking up once again. The best second-tier city performer in eastern China has been Nanjing, growing 1.3% MoM, 5.1% YoY and 19.8% compared to December 2010. Zhengzhou was the best performer in central China with growth of 0.6% MoM, 1.9% YoY and 23.3% compared with December 2010. Northern China has struggled recently given the economic slowdown, though Tianjin has managed to record growth of 0.3% MoM, 1.4% YoY and 11.8% compared with December 2010.

Shanghai surpassed Shenzhen as the city with the fastest price growth in October, growing at 2.1% MoM compared to Shenzhen at 1.2%. In recent months, the fastest price growth has come from first-hand units with sizes ranging from 90-144 sq m, though over a longer time frame the smaller units below 90 sq m still come out on top.

The entrepreneurial spirit, the strength of the financial sector and the cosmopolitan nature and strong livability all lend to Shanghai being regarded as China’s preeminent city able to stand shoulder to shoulder with other international cities. Its status within the China market makes it attractive to investors and end-users alike.

Regional analysis

North-eastern China [Harbin (0.3%), Jilin (-0.1%), Mudanjiang (-0.2%), Changchun (-0.2%), Jinzhou (-0.2%), Dandong (-0.3%), Shenyang (-0.4%) and Dalian (-0.7%)] once again recorded the biggest drop in prices, though it was joined by several other regions in recording a MoM price decline. All cities, apart from Harbin, recorded a drop in prices in October.

North-eastern China has been struggling to cope with a rapid slowdown in the manufacturing sector, one of the mainstays of its employment and economy. This, combined with the oversupply, has resulted in significant overhangs in many cities and weak pricing.

Outlook

A continued slowdown in real estate investment combined with a slowdown in price recovery is likely to encourage the government to take further steps to prop up the property market. This is likely to take the form of a further reduction in down payment requirements and moratoriums or reductions in taxes and fees associated with home purchases. There are also expected to be further reductions in interest rates given the low inflation, weak economic growth and the government’s reassertion that a 7% growth rate is achievable for 2015.

While sentiment has generally improved in recent months, with the destocking in many cities and the return of price growth in first- and second-tier cities, the market is entering a typically slow season in the final months of the year and through to spring festival. The question is, does the market have enough momentum to carry it across this slow period and has enough been done to address some of the fundamental issues plaguing the market.

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Bibliography
National Bureau of Statictics. [Online] http://www.stats.gov.cn/enGliSH/.
Savills Research. [Online] http://en.savills.com.cn/.
国家统计局. [Online]
第一太平戴维斯市场研究部.

Glossary
MoM: Month-on-Month
YoY: Year-on-Year
YTD: Year-to-date