Average Home Prices Rose in 65 Out of 70 Chinese Cities in April

China’s housing recovery continued to spread in April, as 65 out of 70 cities included in an official survey reporting higher average home prices compared to March.

Despite new home purchase restrictions that went into effect at the end of March in Shanghai and Shenzhen, the two megacities continued see prices climb in April, with average home prices now up by 28.1 percent in Shanghai compared to April 2015 and Shenzhen home prices having climbed by 61.2 percent over the same period.

With home price inflation spreading into many second-tier cities, particularly Xiamen, Nanjing and Hefei, the rapid increase in housing values raise the chance of further tightening of real estate sales policies as the government attempts to balance worries over a slowing economy with fear of unrest over housing affordability.

Shanghai and Shenzhen Prices Still Climbing

Month on month growth in home prices in Shanghai slacked off slightly in April, growing by 3.1 percent compared to 3.6 percent in March, after the government raised downpayment levels for buyers of additional homes to 70 percent at the end of last month, and raised transaction-related fees.

In Shenzhen, which has had the hottest real estate market in the country, month on month growth slowed to 2.3 percent in April, after climbing by 3.7 percent in March. The southern metropolis also hiked downpayment levels and put in place other housing purchase restrictions at the end of March.

Beyond Shanghai and Shenzhen, however, prices also climbed quickly during April in Xiamen, which is now up by 21.5 percent over April 2015; Nanjing, which has seen a price hike of 21.3 percent in the last year, and Hefei where prices rose by 17.5 percent in the same period.

House Prices in 70 Cities Up 4.1% Compared to 2015

The government survey showed that, compared to April 2015, prices rose last month in 46 out of 70 cities, compared to just 40 cities showing a year on year increase in prices during March.

Mingtiandi calculations show that prices rose an average of 4.1 percent in the 70 cities last month, accelerating from 2.9 percent during March, and a marked turnaround from the 5.3 average year on year decrease recorded in April 2015.

65 of 70 Cities Report Monthly Growth

Most tellingly, 65 of the 70 cities surveyed saw prices grow on a month to month basis in April, compared with 62 reporting sequential growth in March, and 47 in February.

China’s four first-tier cities, which include Beijing and Guangzhou, in addition to Shanghai and Shenzhen, averaged 2.6 percent monthly growth in home prices in April, down from 3.3 percent in March.

Six second-tier cities, Nanjing, Tianjin, Chongqing, Chengdu, Wuhan and Xiamen, saw average monthly growth nearly matching their bigger brethren, with home prices rising by an average 2.5 percent in April, up from 2.2 percent in March.

For Nanjing, a major hub located in the heart of the Yangtse River Delta and some 300km from Shanghai, 4.1 percent month growth in April was the latest increase in a steady sequence that has pushed average property prices up 13 percent since the end of December. This has coincided with an easing of inventory overhang in the city, where unsold units reached a three-year low in April.

Targeted Tightening Expected

While the pick-up in average national price growth indicates that downward pressure from unsold inventory has abated in some locations, China’s authorities will most likely be concerned about data showing annual growth of over 20 percent in cities such as Xiamen, as well as the continuing price increases in Shanghai and Shenzhen.

If sharp price upticks continue, local governments will likely come under pressure to introduce new purchase restrictions, such as those introduced in Shanghai, Shenzhen and Suzhou, and banks will be instructed to tighteng lending quotas for mortgages.

However, these home price increases in major urban areas come while many other locations still suffer from an oversupply of housing, with local media reports pointing to 9.9 years worth of backlog in Shanxi province alone.

With this uneven recovery continuing, potential tightening measures will likely target cities with the fastest growth, while policy will likely remain supportive in areas where developers still have large amounts of unsold units on their books.