Despite a mild slowdown in the first-half, housing market finished the year with a solid 12 percent year-on-year growth in new home prices, defying the Government’s tightened property curbs, according to a survey conducted by the nation’s biggest real estate website.
2013 started rough with the central Government launching five rules in February to further tighten controls of the property market, including 20 percent resale tax on capital gains, higher downpayment requirement and direct purchase restrictions. It also required local governments in some first- and second-tier cities to take responsibility for curbing soaring home prices, asking them to lay out home price control targets and make sure home prices were kept in check. However, these efforts turned out to be fruitless as home prices were back to their upward trend in the second half of 2013. Over the year, average new home prices rose over 20 percent in first-tier cities and around 10 percent to 15 percent in second and third-tier cities, far beyond their annual targets of around 8 percent.
In 2014, we expect these cooling measures to stay in place but the central Government may give more freedom to local governments, allowing them to fine-tune property policies, depending on their market situations. Cities where home prices soaring too fast in 2013 are likely to roll out new measures, while some third- and fourth-tier cities with large inventories of empty apartments may be allowed to relax measures to bolster the market. A case in point is Wenzhou, which eased restrictions on first-home buyers to purchase second homes in August.
Other than implementing demand-side curbs, we also expect the Government to continue to increase land and housing supply and expand the construction of subsidised affordable housing projects this year. According to the Government’s target, there will be about 4.2 million new subsidised flats available for sale and 6 million units start construction in 2014. However, given the strong inflow of population and insufficient land supply, these supplies will only have limited impact on home prices in first-tier cities.
Excessive liquidity is also arguably one of the major drivers of home price hikes in China. Although the Government has been trying hard to keep money away from the real estate sector through various measures, including forcing state-owned companies to exit the market, developers continued to replenish their land banks in first-tier cities on scarcity concern, driving the total land-sales revenue in the first 11 months of 2013 to increase by 30 percent year-on-year.
Total real estate investment during the same period also increased nearly 20 percent compared with a year ago. We believe the strong investment sentiment from developers will continue to support home prices in first-tier cities in 2014. China central bank may moderately tighten credit to address inflation risk, but with stagnant domestic stock market performance, low interest rates and heavy restrictions on overseas investment, the property market will continue to draw intense interest from both investors and developers.