The average price of a new home in China went up by 0.2 percent in October, but that’s only if you don’t count most of the housing being sold.
The latest figures from China’s National Bureau of Statistics were published last week, and showed that average housing prices went up by 0.2 percent in October, compared to September – the seventh straight month that the Bureau’s survey of 70 of China’s largest cities showed rising prices.
But 70 cities is not China, and the bureau’s nationwide figure disguises a gaping split between declining prices in many smaller cities, and a rapid recovery in China’s major urban centres.
First Tier Cities Rise 15 Percent as Third-Tier Cities Slide
By tabulating the bureau’s statistics for the last year and categorising them by city tier, the segregated nature of China’s housing recovery rapidly becomes clear.
Since October of 2014, average home prices in first tier cities have risen by 15.2 percent, with second tier cities still selling homes at an average of 2.4 percent less than a year ago, and third tier cities faring significantly worse, with housing prices still down by 4.8 percent compared to this time in 2014.
The potential for stagnation in China’s lower tier cities becomes more apparent when you consider that the Bureau’s 70 city housing price survey covers only 16 third tier cities, and does not include the smaller communities that make up the fourth and fifth tiers. The survey includes 50 cities that can be considered as second tier and have populations of more than 3.5 million people. Most analysts agree that China has four first tier cities: Beijing, Guangzhou, Shanghai and Shenzhen.
Smaller Cities Not Yet Showing Recovery
While China’s second and third tier cities are likely to see average housing prices rise once excess inventories of new homes have been sold off, there is little sign of that happening yet, based on the Bureau’s data.
Using the Bureau’s index of average housing prices, which compares monthly average prices for each city each month to a fixed base of 100, while the trend in first tier cities has moved sharply upward since April of this year, prices in second tier cities have been flat, and in third tier cities, prices have continued to move downwards.
The bureau’s figures for unsold homes show that there was 683.3 million square metres of available stock at the end of October – up 17.8 percent from the same point last year. Perhaps more discouraging, with October traditionally being the height of China’s home selling season, the number of cities reporting rising prices on a month on month basis fell to 27 last month, down from 40 cities in September.
Shenzhen Prices Jump 40 Percent in One Year
If nothing else, China’s government real estate statistics demonstrate the need to drill down to figures for specific cities (if not districts) when trying to understand the direction of the country’s housing market, and the implementation of policies.
While home purchase restrictions put in place to control housing price inflation during the previous boom remain in force in China’s first tier cities, the behavior of the markets in Beijing, Guangzhou, Shanghai and Shenzhen has varied dramatically from city to city.
Although Shanghai saw the fastest growing prices in October, with a month on month rise of 2.1 percent, Shenzhen prices are now up by 40 percent in the last year, while prices in Guangzhou and Beijing have risen more slowly.
Over the last year, prices in Shanghai have trailed Shenzhen’s torrid pace, but are still up by more than 10 percent compared to the same month in 2014. However, despite the same written rules having effect in Beijing and Guangzhou as in the other two first tier cities, home prices in the capital have gone up only 5.44 percent over the last year, with rates leavening by 5.71 percent in Guangzhou.
Understanding Policies and Inventories
Some analysts have attributed the rising prices in Shenzhen to laxer enforcement of home purchase restrictions, as well as to more liberal migration policies which permit migrants to the city to more easily purchase homes. Beijing and Guangzhou are seen as more strict in enforcing both migration rules and the country’s home purchase restrictions.
For next month, Mingtiandi will try to take a deeper dive into where homes are being sold in terms of transaction volumes, to see how significant the price recovery in the first tier cities is for generating revenues for developers. However, with only four first tier cities compared to legions of third tier communities, the stagnant situation in these smaller cities is likely to mean disappointing performance for developers who have not been able to secure projects in first or second tier cities.