Shanghai Home Prices Now Up 31% in 12 Months as Housing Fever Rages

Home prices in Shanghai, including government subsidized housing, rose by 4.4 percent last month, according to figures released by the National Bureau of Statistics. Prices in the city have risen 31.2 percent in the past 12 months as the government’s stimulus measures have made it easier for buyers to finance home purchases.

The August home price spike in China’s commercial capital has been partly attributed to talk of an increase in down payment requirements. The government has since denied any home buying curbs and, according to the Financial Times, arrested seven real estate agents for spreading the rumors which led to couples getting divorced to help facilitate purchases.

“It stirred up panic buying, with some new projects selling all their units at launch even at high prices,” Joe Zhou, head of research at JLL in China, told the South China Morning Post.

The jump in home prices comes after a July in which the Shanghai market had slowed down, recording a paltry 1.2 percent increase over June. NBS data showed China’s other tier one cities also recorded significant home price increases in August compared to July, with Beijing up 3.6 percent, Guangzhou rising 2.4 percent and Shenzhen seeing a 2.1 percent bump.

Second and Third Tier Cities Join the Party

And the return of real estate fever is not confined to China’s megacities.

Home prices in many of China’s second and third tier cities also took big jumps last month with Zhengzhou witnessing a 5.5 percent increase during August, the largest in the country. Wuxi recorded the second largest jump at 4.9 percent while Hefei saw a 4.8 increase, Fuzhou posted a 4.2 percent gain and Nanjing home prices increased by four percent.

According to the NBS, home prices rose in 64 of the 70 cities it monitors — up from 51 in July. Home prices were up an average 1.2 percent across the country, which was the largest increase in six years, with only four cities seeing prices decline. Dandong, located on the Yalu River across from North Korea, fell by 2.1 percent last month, the biggest drop in the country.

Easy Credit Fuels Home Price Growth

According to Rosealea Yao, an economist at Gavekal Dragonomics, easily obtainable credit and relatively relaxed property policies in China will continue to drive prices higher even though they have reached levels that may be unsustainable.

“Credit stimulus in the beginning of this year played a huge part in driving up prices. How to limit the liquidity in the market should be a primary concern for the government,” Yao explained to Business Insider.

BI also noted that official data shows mortgage loans account for a majority of loan growth in China. More than 70 percent of bank loans in the country during August were home loans.

Some curbing measures such as higher down payment requirements and non-resident buying restrictions have been implemented in Shanghai, Shenzhen, Xiamen and Nanjing with Hangzhou set to follow suit. These have not totally stymied soaring home prices.

“The local curbs have limited impact as home inventory has already fallen to a low level,” Jeffrey Gao, a Hong Kong-based property analyst at Nomura Holdings Inc, told Bloomberg. “Prices will not fall unless the government moves to tighten credit and add more land supply.”