A quiet start to 2017

“Price movements stabilised in January as cooling measures introduced in the last quarter of 2016 continued to be effective, although the beginning of year is a traditionally slow period given the Chinese New Year holiday. Shenzhen continued to witness one of the biggest price decreases amid weaker buying sentiments.” said James Macdonald, Head of China Research

Overview

In January 2017, 45 of the 70 cities recorded month-on-month (MoM) increases in first-hand commodity residential prices, compared with 46 cities in December. Five cities recorded no change, while 20 recorded price decreases.

The three cities with the largest increases were: Sanya (1.7%), Chongqing (1.3%) and Jiujiang (1.1%).

The six cities with the largest decreases were Wuxi (-0.5%), Shenzhen (-0.5%), Urumqi (-0.3%), Tianjin (-0.3%), Ningbo (-0.3%) and Fuzhou (-0.3%).

On average, the 70 cities prices increased by 0.24% in January, the twenty-first consecutive MoM increase for the 70 city index, but down from 0.26% in December. Average prices are currently up 10.69% year-on-year (YoY), and up 19.61% compared with December 2010 when the index was first established.

First-tier city analysis

First-tier cities saw no growth in January, as cooling measures introduced in the final quarter of last year combined with stricter enforcement of existing regulations brought about a rapid slowdown in the price growth. This month also saw the slowest pace of price growth for all city tiers.

Once the laggard of the first-tier cities, Guangzhou was the only first-tier city to record growth in January, increasing 0.6% MoM, although it continues to have the slowest growth rate since the index first began in December 2010. The other first-tier cities, all recorded no changes or moderate declines, with Shenzhen falling 1.7% since its peak in September 2016.

First-tier cities continue to have some of the lowest levels of unsold inventory, the most vibrant economies and job markets, as well as some of the strongest demand for housing. Despite this, increasing unaffordability as well as stricter lending criteria and purchasing restrictions have tempered short-term growth, allowing these markets to consolidate recent home price increases.

City tier analysis

All city tiers recorded a slowdown in the pace of price growth in January, except for fourth-tier cities accelerating by 7 bps. First-tier cities were the only market to record no growth in January, with fourth-tier cities recording the strongest growth of 0.49% MoM.

First- and second-tier cities

The five best performing second-tier cities in January were Chongqing (1.3%), Xi'an (0.8%), Changsha (0.6%), Qingdao (0.1%) and Shenyang (0.1%).

Six second-tier cities saw a pick up in price growth in January, compared with only two cities in December.

Regional analysis

All regions recorded growth in January, while only central and south west China recorded an acceleration in price growth.

As one of the weaker regions, growth in north east China saw the greatest slowdown, decelerating 19 basis points (bps) to just 1.45%. This was primarily due to Harbin (-0.1%, -0.9 ppts), Shenyang (0.1%, -0.5 ppts) and Jilin (-0.1%, -0.5 ppts).

Outlook

The market was turned on its head by the new policies introduced at the end of 2016. This is evident in both data from the National Bureau of Statistics (NBS) and the recent performance of the land market.  Developers will have a guarded outlook of 2017 in terms of possible strategies required to overcome challenges in the market or from the need to adjust targets down to more manageable levels. If sales volumes continue to slow, developers may need to consider adjusting prices down slightly in order to generate sales.

The policy environment is likely to remain passive in 2017, especially in the first half of the year with sales volumes and price growth rates having moderated significantly in the last three to four months. Volumes could remain subdued for a sustained period of time with expectations that 2017 could see a 20-30% reduction in volumes and a 0-5% decline in values.

While it is important that individual cities have the ability to introduce policies to affect supply and demand levels as well as price growth, the increasingly convoluted and varied nature of these measures is making it harder to understand and navigate China’s property market, for investors, developers and home owners alike. At some point in the not too distant future, there needs to be a comprehensive review of the different land management and price cooling measures that have been tried and tested in individual locations, with the best and most effective measures actively promoted by a central authority to city governments as a toolkit for local policy makers and administrators. There should also be, if there is not already, a central resource that tracks and reports on policy changes with regards to property and land markets, not just at a national level but at a provincial, city and district level too. Increased transparency and consistency is needed in a market which remains such an important pillar to the economic health of the nation.

Bibliography

National Bureau of Statistics.

Savills Research.