China house prices defy cooling measures

Views Of Shenzhen Ahead Of China Property Price Numbers...Bloomberg Photo Service 'Best of the Week': Residential buildings stand illuminated at night in the Nanshan district of Shenzhen, China, on Wednesday, Aug. 6, 2014. ChinaÕs home sales fell 28 percent in July, the biggest monthly decline this year, as tight mortgage lending outweighed efforts by local governments to ease property curbs as prices and demand weakened. Photographer: Brent Lewin/Bloomberg©Bloomberg

Apartments in Shenzhen, where home prices are up 63% year on year

House prices in China’s leading cities surged as much as 63 per cent in the year to March while lower-tier cities saw prices tumble, highlighting the country’s increasingly bifurcated market.

In places such as Shanghai and Shenzhen, soaring house prices and subdued wage growth have sparked a frenzy of borrowing — estimated at an additional $ 48bn in January alone — prompting city governments, wary of a repeat of the US subprime crisis, to crack down.


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These measures, introduced in January and including curbs on financing for downpayments and second homes, have had little impact so far in the “tier-one” cities. Year-on-year price rises in March were as much as 63 per cent in Shenzhen and 30 per cent in Shanghai, according to the National Bureau of Statistics’ monthly 70-city property price survey.

“The [nationwide] rate of increase in prices of new and existing residential buildings has significantly accelerated from the previous month, by 0.6 and 1.2 percentage points respectively,” wrote Liu Jianwei, an NBS statistician.

New mortgage borrowing increased 60 per cent in the first quarter year-on-year, according to Faye Gao, analyst at Bernstein Research. The research house estimates new lending reached Rmb313bn ($ 48bn) in March, second only to this January over the past five years.

The main reason for the uncontrolled price rises is the monetary easing of the past two years, according to Rosealea Yao of Gavekal Dragonomics, a research group. The People’s Bank of China has been cutting its benchmark interest rates since 2012, making mortgage-lending cheaper.

“When you create a lot of liquidity, it flows to the hottest markets,” said Ms Yao, who suspects easy credit and property speculation have stoked sharp price rises.

Homebuyers have circumvented clampdowns on downpayment financing, which prohibit use of peer-to-peer lending among other funding sources, by finding ever more novel ways to obtain the 20 per cent of value deposit requirement.

Last month Securities Daily, a Chinese newspaper, reported on one homebuyer in Shenzhen using 20 credit cards to borrow the money for his downpayment.

Among other tier one cities, prices in Beijing were up 28 per cent year-on-year for existing homes and 18 per cent for new builds.

By contrast, prices in less desirable “tier-three” cities such as Dandong and Jinzhou, down 3-4 per cent, were depressed by build-up of unsold stock.

“The authorities now face a difficult task of taming the red-hot markets of first-tier cities and some second-tier cities, while continuing to support lower-tier cities,” James MacDonald, director of China Research at Savills Property Services, wrote in a note.

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