The Central Bank announced a third round of interest rate cut in 2015 effective from 28th June, one-year benchmark lending rates lowered by 25 basis points to 4.85 percent and deposit rate lowered by 25 basis points to 2%. Moreover, the Central Bank cut its reserve ratio requirement by 0.5% to 19.5% in February. It has also reduced the required reserve ratio of banks lending to the agricultural sector and small businesses by 50 basis points. After the announcements were made, Beijing government also followed to further lower the lending rate of provident fund loan over five years from 3.75% to 3.5%, hitting a new low in history. These signs showed that the central government of China has stepped up to stimulate the slowing economy and property market.
Given the multiple simulative policies being rolled out by the central government, the performance of the real estate market in first-tier cities has shown improvement for the first half of 2015. For Beijing residential market, the transaction volume for the first week of July reached 197,000 sqm after the new provident fund lending rate rose by 5.9% compared with the previous week, with a total of 1,571 transactions. For the first six months, the average price went up by 6.3% y-o-y to RMB 27,000 psm.
For Guangzhou residential market, the transaction volume has increased for consecutive months to 42,327 deals for the first half of 2015, up 30% y-o-y. Last year the average price stayed at RMB 14,200 psm with no significant y-o-y changes. It has increased to RMB 15,100 psm in June 2015, up 5.4% m-o-m. Luxury residence markets also recorded an upward trend. There were 840 transactions with prices over RMB 40,000 psm, up 44% y-o-y.
The average price of residential units in Shanghai ranked the second highest throughout the country in May, with Shenzhen the highest. The price was around RMB 31,871, up 15.47% y-o-y, hitting a 5-year high in growth. Drastic increase of transaction volume and price were recorded in Shenzhen residential market. The absorption of primary market reached 608,000 sqm and 6,106 transactions in May, up 50% m-o-m and 139.7% y-o-y. The average price of primary residential units remained high at RMB 28,487 psm, up 18.8%. Price growth in Nanshan was the greatest, surpassing RMB 61,000 psm, up 85.7% y-o-y.
The government has rolled out multiple stimulus initiatives to spur the slowing economy and led to recovery in real estate market. Looking forward, the market is anticipating inflow of capital from the recent fluctuating stock market to property market in the second half of 2015. Market sentiment is expected to improve.
