Cooling measures implemented in March has suppressed price increase in Tier-One cities. Yet, as demand flows towards Tier-Two cities as a result, stock begins to pile up in Shanghai and Shenzhen while inventory level in Tier-Two cities, such as Nanjing, Xiamen, Hefei and Suzhou continues to fall due to the cities’ heated demand.

For example, prices of new homes in Hefei has risen 6% m-o-m and 18% y-o-y in April while prices of residential units in the secondary market increased 7% m-o-m and nearly 30% y-o-y. While Hefei’s rise in home prices in both primary market and secondary market is leading in the 70 mid- to large-cities studied by the National Bureau of Statistics, transactions at Hefei is also on the rise, with reports showing total area sold in the primary market rising over 30% in 1Q2016.

Around 75 residential plots have been sold in Nanjing, Xiamen, Hefei and Suzhou in 2016, providing an additional 9.53 million sqm of residential land supply. The total premium paid for the plots exceeds base prices 125% on average, with premium rate rising 120% from 2015’s figure. Land prices in Suzhou, Nanjing and Hefei have all surged over 100% in the year with Suzhou’s rising over 8 times y-o-y. With land prices rising at a much quicker rate than home prices, developers may face considerable problem should home prices stay stagnant or even drop.

On the other hand, rumours about imminent cooling measures in the cities are intensifying. Nanjing’s government is said to be implementing maximum prices soon for residential plots in sought-after areas of the city. Special attention will be given when considering submission of building costs, not allowing the inclusion of building costs of indemnificatory housing in developer’s building costs allowance for residential plots sold at prices over 45% of the plot’s base price.

Rumours about Hefei launching cooling measures in June has also been heard. Spokesperson of the city’s real estate authority has not denied the possibility of the implementation of property-purchasing and mortgage restrictions in the near future. Suzhou’s city government, meanwhile, is also said to have plans for new restrictions such as requiring buyers to have paid for social insurance for at least 1 year, personal income tax for 2 years while having held the city’s residence permit for at least a year and so on.