Falling Home Prices Hit Lower-tier Cities In ChinaChina’s red-hot market has shown slowing signs since late 2013, due to local governments’ property measures including tightening purchase restriction, increasing supply of affordable housing and tightening credit conditions.

During the new year lull, property buying activity remained at a low level in February, with the number of total residential floor space sold during the first two months of 2014 staying as the same level as about 93 million square meters, down slightly 1.23% compared with the same period a year ago.

In major cities, Beijing’s home sales fell 66% m-o-m to 251,000 square meters, Shanghai fell 36% to 732,000 square meters and Guangzhou 43% to 494,000 square meters. Shenzhen, on the other hand, saw a 40% increase, to 238,500 square meters.

While home sales remained weak across the country, home prices continued to be on the uptrend in 2014, albeit in a slower pace. According to official data published by National Bureau of Statistics in mid March, average home prices in 70 major cities in China rose 8.7 percent in February compared with a year ago, a significant slowdown compared with a 9.6 percent increase in January and 9.9 percent in December. In a month-on-month basis, it was a 0.3 percent increase from last month, easing from 0.4 percent in January.

In first-tier cities, Beijing and Shenzhen both saw a 0.3% increase in new home prices from last month, the slowest growth seen in recent months. New home prices rose 0.4% in Shanghai and gained 0.5% in Guangzhou during the same period respectively. Existing home prices were unchanged in Beijing in February and increased 0.5% in Shanghai, 0.6% in Guangzhou and 0.4% in Shenzhen.

On the contrary, oversupply, weakening demand and high vacancy continued to weigh on home prices in China’s small cities. 4 out of 70 monitored cities saw declines in home prices on a month-on-month basis, compared to five cities in January, with all of them being inland third or fourth-tier cities, namely Wenzhou, Mudanjiang, Anqing and Jining. Of which, home prices in the eastern city Wenzhou continued to lead the drop with its new home prices falling 0.2 percent from a month earlier and 4.1 percent from the same period last year.