The main indicators of China’s economy in the third quarter were mixed, and overall it was stable with the general sales and employment conditions remaining solid throughout. Although industrial production and investment have slowed down, the service industry has grown rapidly. The market has waited for frequent counter-cyclical adjustment measures and reforms in Mainland China in recent months—including comprehensive and targeted required reserve ratio cuts, liberalisation of the QFII quota and reform of the loan market-based pricing interest rate mechanism “Loan Prime Rate”—to see whether it can improve liquidity and support domestic economic growth.

Since May, the growth rate of real estate development investment, new construction areas of housing and funds obtained by property developers have been reduced for several consecutive months. According to the National Bureau of Statistics, real estate investment increased by 10.6% year-on-year in Jan-Aug 2019 to RMB 8,460 billion; the total sales area of commodity housing reached 1.018 billion square metres, down 0.6% year-on-year. The average unit price for the period of Jan-Aug 2019 was RMB 9,319 per square metre, up 9.3% year-on-year; while the total sales of commodity housing increased by 6.7% year-on-year to RMB 9,540 billion.

In the coming quarter, the adjustments in the overall housing market are expected to be limited, although the national property market is expected to continue to cool down, as if delaying the time of any loosening in the property market measures. Affected by the continued tightening of the financial environment, the pressure on property developers will continue to rise. Given the greater degree of implementation of the housing policy control, as well as the stable demand for home purchases, the property market in first-tier cities will become steady with some downside risks. Moreover, impacted by the current land sales control policy, the future land premium is expected to be lowered, and the number of failed land auctions could increase.  

In terms of real estate prospects in first-tier cities, Beijing continues to be the city with the strongest policies and the most stringent implementation of them, but the consequences are also the most obvious. The demand for subsequent home purchases will be affected by the increase in new supply and government crediting policy. In Shanghai, where policy risks are relatively stable, the overall downside risks of house prices will be reduced, driven by the new supply of high-end properties. Guangzhou’s house prices will remain stable, as driven by strict housing restrictions and demand for first-time home purchases. With an increasing demand for commodity housing in Shenzhen, the city has also increased the supply of affordable housing while actively stabilising the development of overall residential properties.