China Home Price Growth Slows as Big City Markets Freeze Up

Two separate surveys by private research firms show that the increase in China housing prices slowed in February. At the same time, figures from Beijing and Shanghai show that transactions have fallen off dramatically as buyers and sellers both wait for more favorable conditions.

A poll released over the weekend by E-House indicated that average home prices across 288 cities in China rose 9.08 percent last month, compared to the same period in 2013. The figure was a drop from the 9.39 percent growth recorded in January and was the slowest rate of increase in 10 months.

In a report announced the same day, China Real Estate Index System (CREIS), a division of Soufun, estimated that average home prices rose 10.8 percent last month compared to 2013, a drop off from the 11.1 percent increase recorded in January.

The results from the two market information firms indicate that tightened credit conditions and policy restrictions introduced last year have started to have an impact on the country’s housing market. The government initiatives came in responsive to several months of double-digit growth in home prices in the country’s major cities.

Beijing and Shanghai Markets Grind to a Halt

In Shanghai and Beijing, which have come under increased central government scrutiny after havig the some of the fastest growing housing markets in the country last year, the recent clampdown seems to have resulted in a major slowdown in market activity.

The Beijing Municipal Commission of Housing and Urban-Rural Development reported this week that, in February, the number of new houses sold in China’s capital fell to its lowest level in since 2007. Home sales were down 68 percent compared to January, with just 2,221 properties changing hands in February, the commission said.

The numbers for Shanghai also showed a significant drop in transactions, with new home sales in February falling to their lowest point in 24 months according to data from Shanghai Uwin Real Estate Information Services.

Purchases of new homes, excluding government-subsidized housing, totaled 418,700 square meters last month, down 41 percent from January. The February figure also represented a 23 percent decline from the same month a year ago.

No Fears of a Bursting Bubble

Despite the drop in transaction and cool-down in pricing, a Reuters poll released last week showed little fear of an industry catastrophe.

The survey of 13 industry analysts indicated that most respondents saw a fall of up to 10 percent in prices in some smaller cities as the worst-case scenario, with no correction seen in large cities.

Reports last week of discounting at residential projects in Hangzhou and Changzhou, along with the slowdown in price growth, had led to a drop in China developer stocks. On Tuesday last week, the Shanghai Stock Exchange Property Index (SHCOMP) fell 5.4 percent – the measure’s biggest fall since the first half of 2013.