Housing prices set to reach another record high

According to the National Bureau of Statistics, new home prices rose in 62 out of 70 large- and medium-sized cities in March versus 56 cities in February and 45 in January, showing that the market sentiment is becoming strong again despite the government’s extra control measures. This trend was well expected given that the land sales market has been in an undersupply situation for over 24 months, which means China has been selling lands less than selling properties. With this undersupply condition and the growth in the economy, the housing prices would have to be high.

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Some people say there is a large amount of land in developers’ land banks so it will not be undersupplied for property. However, land development usually takes 10-12 years. Within any given year, developers actually do not have much supply and the government has to keep selling lands to match the market demand. Since the government did not do a lot of that in the past two years, prices continued to increase in the housing market.

First tier cities are where wealth is concentrated in and there is persistent increase in wealth and in the number of wealthy people. Although home prices are already high in these cities, people there are not constrained to purchase a house and thus home prices continue to pick up. Besides, property in second and third-tier cities, which constitutes around 85% of the overall property market, is still affordable and would have room for price increase. The current housing market in China is different from a few years ago in the sense that the price growth divergence is now much sharper between the top 50 cities and the rest, which means people are buying property in the right cities, where infrastructure investment has been significant. Cities like Wuhan, Tianjin and Hangzhou were developing or expanding their transportation network extensively over the past years, with no or one metro line in 2011 but increased to four or five by 2016, which have been prompting the expansion of economic capacity of these cities which brings in considerable amount of business and people.

Money supply has been growing rapidly in the past years, while land has been under supplied and cannot catch up with the growth of money supply. Increasing number of people have been storing their wealth in property which is expected to experience stable price growth over the years. 

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