After months of record gains in home prices, China’s real estate market showed signs of cooling down this week when official statistics revealed price growth of less than one percent in the country’s first-tier cities. The weakness in property prices has caused stocks in major real estate developers to fall both in China and internationally.
Market data released by the National Bureau of Statistics indicated that home prices in Beijing and Shenzhen both increased only 0.4 percent compared to the previous month, while Shanghai added only 0.5 percent and Guangzhou 0.7 percent. For Beijing, Shenzhen and Shanghai the rates of increase were the lowest since late 2012.
Outside of the first-tier cities the market appeared even less encouraging with Hangzhou, Wenzhou, Harbin, Baotou, Jining and Shaoguan all reporting falling prices. In December, prices dropped only in Wenzhou and Shaoguan. Nationwide average prices rose 0.1% on month, a marginal drop compared to December’s increase of 0.4%.
New Price Restrictions Taking Hold
Analysts attribute the slowing growth to new restrictions on real estate sales which were first introduced in the first-tier cities in October and November finally having an impact on sales. Shanghai, Shenzhen and Guangzhou all raised minimum down payment levels for purchases of additional homes (beyond existing individual holdings) to 70 percent from 60 percent as part of these new measures to prevent a real estate bubble.
In recent months there have also been reports of a general lending clampdown by banks and authorities have pressured local governments and state-run banks to prevent rapid home price increases, and banks have become concerned about increasing default risk. The official Shanghai Securities Journal said on Monday that China’s Industrial Bank Co Ltd had suspended some types of property-related loans, although there were no indications of this being an industry-wide trend.
Major Developer Share Prices Slide in Hong Kong and Shanghai
Markets were quick to react to the new statistics with the Shanghai Stock Exchange Property Index (SHCOMP) falling 5.4 percent by the close of trading yesterday – the measure’s biggest fall since the first half of 2013.
Shares in property developer China Vanke Co Ltd fell 6.6 percent on Monday, while China Resources Land Ltd ended down 6 percent.
Stocks of Chinese developers listed in Hong Kong also slid this week with China Overseas Land & Investment Ltd. falling from HK$21.00 on Friday to HK$20.20 by Tuesday’s close. Evergrande Real Estate Group Ltd. slipped from HK$3.45 on Friday to as low as HK$3.15 on Monday only to recover to HK$3.29 by Tuesday’s close.