A Cool Down Trend In Chinese New Home MarketThe property market in the first-tier cities posted a disappointing performance for the first half of the year 2014, attributable to a high base effect on stronger sales in 1H 2013, credit crunch in housing sector, an economic slowdown, surging level inventory, as well as people with genuine housing needs who continue to stay on the sidelines. The total first-hand transacted areas in Beijing plunged 48% Y-o-Y in 1H 2014, representing the worst performed city among the tier 1 cities, whilst the remaining three cities (Shanghai, Guangzhou and Shenzhen) also reported an average high drop of 40% over the same period. Meanwhile, we also see a 20% annual decrease in total transacted areas in tier 2 and tier 3 cities.

Nonetheless, new home prices in tier 1 cities manage to buck the cool down trend in the property market. According to China Index Academy, the price rose some 2.6% Y-o-Y in 1H 2014, against the average of 12% found for tier 1 cities (Beijing: 19%; Shanghai: 10%; Guangzhou: 9% and Shenzhen 10%). In other words, new home prices in the four representative cities of the Mainland have yet to see substantial adjustments.

In general, despite the growth in new home prices, there has been some signs of slowdown, as the prices remain at extremely high levels. In the absence of a large number of unfavorable factors in the current economic situation in China, alongside any significant changes in national housing policy, potential demand will enter the property market, should there be the substantial decrease in property prices. We expect the governments from tier 1 cities to continue to curb speculative investment demand, in order to help regulate housing demand. As such, a further cooling down trend in the new home market in Chinese tier 1 cities is likely to occur in the short term.