After home prices jumped by as much as 76 percent in China’s first tier cities from the beginning of 2015 through the end of last year, the country’s leadership came into 2017 determined to stop speculation and cool down the cost of housing in major cities such as Beijing, Shanghai and Shenzhen.
Halfway into the year, however, the market for housing in China’s largest urban centres looks more frozen than cooled, with home sales transactions nearly disappearing compared to 2016.
New home sales in Shanghai from January through the end of June totalled about 29,300 units, or 3.57 million square metres in the first six months of 2017, plunging 51.8 percent in terms of units and 52.8 percent in terms of floor area compared to the same period last year, according to data from Shanghai Homelink Real Estate Agency.
Only about 686,100 square metres of new apartments were sold across Shanghai in June, down 3.4 percent from May and a 45.1 percent fall from June 2016, according to the property agency. This is reported to be the worst June figure in six years.
The dropoff in home sales follows after Premier Li Keqiang told the National People’s Congress during March that, “Housing is for housing, not speculation.” During meetings that month, China’s Ministry of Housing and Urban Rural Development rolled out highly targetted guidelines seeking to fix housing prices in individual cities, limit the ability of buyers to purchase homes and eliminate the specter of ever-rising costs for basic shelter.
Beijing, Shenzhen Also Feeling the Pain
Besides the arctic chill rolling through Shanghai, home sales are also taking a drive in China’s capital. Homelink data indicates that 8,918 secondhand homes were sold in Beijing in June, dropping 30 percent year-on-year and 17.4 percent month-on-month. Previously occupied home sales have been sliding since the municipal government clamped down on the market in March, totalling 16,900 and 10,800 in April and May, respectively.
Stricter housing rules are also dragging on the secondary housing market in Shenzhen, where sluggish growth was reported with 6,343 secondhand units trading in June compared to 6,283 units in May. Home prices in Shenzhen had risen 76 percent from January 1, 2015 through the end of 2016, according to official figures.
Housing Crackdown Takes Its Toll
The slow data comes in the wake of a widespread government crackdown on the bubbly Chinese housing market. Surging prices in 2015 and 2016 prompted at least 20 cities across the country to tighten restrictions on home sales beginning last October. These measures largely failed to quell the boom, which continued into the first months of this year.
Then in mid-March, central government officials pledged to tackle the housing bubble in big cities once and for all. The city of Beijing announced its toughest measures yet, raising the down payment requirement for most second home purchases to an unprecedented 80 percent. Dozens of cities across the country followed suit with their own tightening measures.
Fitch Ratings forecasts that a continuing housing downturn driven by tougher policies and tighter credit will take a toll on China’s economic growth in the second half of this year and into 2018. The New York-based credit ratings agency pointed out in a recent report that growth in new home sales in China have decelerated for five months straight, slowing to 24.0 percent year-on-year in the 12 months through this past May, down from a peak of 36.2 percent in the year through last December.