China’s home prices rose at their fastest clip in almost two years last month thanks to red-hot demand in big cities, but risks of overheating in some places combined with weak growth in smaller cities threaten to put more stress on an already slowing economy.
Average new home prices in 70 major cities climbed 3.6 percent from a year ago, quickening from January’s 2.5 percent rise, according to Reuters calculations based on data released by the Chinese National Statistics Bureau (NBS) yesterday.
That was the quickest year-on-year increase since June 2014, and encouragingly, 32 of 70 major cities tracked by the NBS saw annual price gains, up from 25 in January.
“The government’s all-out encouragement of housing sales seems to be working, but at the cost of surging prices in big cities,” Beijing-based Gavekal Dragonomics economist Rosealea Yao (姚麗薔) said. “These surges in big cities are not sustainable and would increase uncertainties and instability in the overall housing market.”
The data showed tier-1 cities, including Shenzhen, Shanghai and Beijing, remained the top performers, with prices surging 56.9 percent, 20.6 percent and 12.9 percent respectively.
“Prices in first-tier cities are very expensive now, it’s hard for new families to afford a home,” said Tan Huajie (譚華傑), vice president of China Vanke Co (萬科), the country’s biggest property firm.
The trouble is that speculators and ordinary investors, who have been shaken by the summer crash in Chinese stock markets, are increasingly ploughing their money into the housing market — most of it going to the frothy sector in big centers.
A slowing economy has also meant most jobs are in the biggest cities, drawing more people into these places and feeding the insatiable demand for homes.
A breakdown of NBS data showed that a slew of government measures and increased lending has failed to arrest persistent softness in property markets in smaller cities, where a glut of unsold houses have weighed on prices.
Most third-tier cities still saw on-year prices drops last month, though the declines eased from the previous month.
Senior Chinese officials raised alarm over the country’s overheated housing market during an annual parliament meeting this week.
In an effort to deter speculation, some officials have suggested the release of more public land for sale in areas with the hottest price rises, while others have vowed to crack down on players illegally lending home-buyers to make downpayments.
Chinese Minister of Houseing and Urban-Rural Development Chen Zhenggao (陳政高) on Tuesday said that price divergence in China’s big and small cities poses a challenge for housing market policy controls.
“Now one important task for us is to stabilize home prices in tier-1 cities and some tier-2 cities,” Chen said.
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