Home prices are rising across China, but smaller cities are getting most of the action, the latest official data shows.
New home prices, excluding government-subsidized housing, rose in 57 out of 70 cities nationwide in December, according to figures from the National Bureau of Statistics (NBS) — compared to just 50 out of 70 cities in November. The cost of new housing per square metre fell in just seven mainland cities compared to the previous month, while rates went unchanged in another six of the mainland’s largest urban centres.
On average, new home prices in December climbed 5.3 percent year-on-year, up from November’s 5.1 percent growth rate. Despite the uptick, the year-end figures reveal the extent to which China’s once raging housing market has been pacified since 2016, when average home prices in China’s first-tier cities jumped 23.5 percent, while rising 14 percent in second-tier communities and 11 percent in third-tier cities.
Smaller Cities, Bigger Price Jumps
In contrast to the 2016 results, housing price increases in China now seem to have an inverse relation to community size. The cities with the biggest gains in home prices last month are mainly in less-developed provinces in the country’s north and western regions, as a policy-induced slowdown in the country’s largest cities diverts demand into the hinterland.
Kunming, the capital of southern province Yunnan — and a nearly three-hour flight from Guangzhou, the closest first-tier city — saw 2.6 percent growth from the previous month, the highest among the 70 cities tracked. Yunnan’s Dali had the fourth-biggest rise in prices at 1.5 percent. New property prices in Haikou, a port city in the island province of Hainan, grew by the second-highest rate at 2.2 percent, and little-known Luzhou in western Sichuan province placed third with a two percent bump.
First-tier cities have seen low or negative growth in new-home prices, as increasingly stringent policy measures keep market activity at bay. Beijing recorded zero change in its first-hand property prices, while Shanghai posted tepid growth of 0.2 percent from the previous month. Top-tier southern cities Guangzhou and Shenzhen saw price declines of 0.3 and 0.2 percent, respectively.
Diverted Demand Cuts Overhang of Unsold Homes
Price-control measures in China’s biggest mega-cities drove many developers into smaller conurbations, where local authorities offered attractive credit and less-restrictive policies, causing property price growth to be concentrated in lower-tier cities.
The latest government data also gives evidence that the authorities are winning their battle to control overall average prices, while reducing inventory of unsold homes. By the end of 2017, the area of unsold non-government-subsidised homes had shrunk by 15.3 percent from the previous year, according to the NBS.
This reduction comes after China’s Ministry of Housing and Urban-Rural Development, together with the Ministry of Land and Resources, last April jointly announced new rules governing land sales “to strengthen the adjustment and control of housing and land supply management in the near future.”
One feature of the new regulations is that cities with an overhang of existing housing stock equivalent to 36 months or more of recent monthly sales were required to stop selling new land. Communities where existing housing supply was equal to 18 to 36 months of sales were instructed to reduce the supply of new land put on the market.