Fewer Chinese cities saw housing price gains in May compared to the previous month as official measures to smooth out a bubbly residential market have begun to take effect. According to figures released by China’s National Bureau of Statistics (NBS) on Monday, new home prices excluding government-subsidized housing rose month-on-month in 56 of the 70 cities tracked, compared to 58 cities in April and 62 cities in March.
The home price slowdown follows redoubled efforts by China’s central government this year to put a lid on the country’s bubble housing market.
First Tier Cities Look Calm
Corresponding to the drop off in price increases, home prices fell in nine cities and remained flat in five cities. Among the first-tier cities, Shanghai and Beijing stayed flat while Shenzhen saw prices drop by 0.6 percent. Guangzhou was the only first-tier city to see a lift, with prices climbing by 0.9 percent.
Overall, average prices rose by 0.7 percent month-on-month in May, in line with the April figure, and showed a 10.4 percent year-on-year gain, declining slightly from the 10.7 percent growth seen in April. A separate release from NBS reveals that the amount of residential floor space sold in the first five months of 2017 jumped 11.9 percent year-on-year.
Regulatory Crackdown Puts a Damper on Prices
The calm in China’s housing market comes after dozens of cities slapped stricter rules on homebuyers in March, following the annual plenary meetings during which national authorities pledged to reign in soaring home prices in some cities. Municipal officials in Beijing imposed the harshest curbs by raising the down payment requirement for second-property buyers to 80 percent of the purchase price, among other measures in mid-March, causing property transactions in the city to plummet.
In some cities, it appears that local authorities are simply dictating how high prices can rise. Municipal officials in Beijing, for example, have reportedly set an unofficial ceiling of RMB 80,000 ($11,774) per square metre on new housing projects, according to the South China Morning Post. Not one residential development in the capital has been granted a license to sell above that price this year; Beijing’s latest project, China Seal, recently received a pre-sale permit for RMB 79,458.99.
The city of Kaifeng in Henan province has gone a step further by setting an explicit ceiling on price growth. City officials introduced a new rule in mid-May mandating that for new housing projects, initial sale prices must reflect the average pricing of similar projects in the area. For subsequent sales, prices must not rise by more than five percent within six months or by 10 percent within a year.
While such explicit price caps are rare, industry insiders have suggested to Mingtiandi that a number of cities have intervened with developers behind the scenes to set limits on pricing of new projects.
Developers Find Ways Around Price Caps
Despite the apparent causal link between tighter regulations and cooling price growth, some caution must be taken in drawing conclusions from the NBS data. The reported figures may underestimate the true price levels, due to such factors as the widespread use of “decoration contracts.” These side agreements between developers and apartment buyers allow homebuilders to bypass official price limits by shifting a portion of their profits to a separate contract.
The NBS figures also do not include commercial-titled housing, which accounts for a huge and growing share of the market in some cities. The use of real estate zoned as commercial space for residential purposes has become a major issue in cities including Shanghai, Beijing, and Chengdu, prompting a series of crackdowns by local authorities. According to figures from a local real estate agency quoted by Caixin, commercial-titled units made up more than 50 percent of sales for 13 property developers in Shanghai last year.