With homebuyers planning a vacation, developers slowing their launches and home sellers taking their properties off the market ahead of the Lunar New Year holidays, January-February is always a lull period in home sales. This year, though, the New-Year slowdown was even sharper than it was last year, according to statistics from a range of property agencies. New home sales in 54 major cities totaled some 190,000 units during the month, down 11% from December last year and down 16% compared with the same period a year ago.
In Beijing, first-hand transactions in January fell 40% m-o-m and 44% y-o-y respectively, while second-hand sales also fell 20% from December and 55% from a year ago. Average home prices dropped 1.87% m-o-m in January, sliding to RMB 29,502 per square meter. In Shenzhen, first-hand sales were down 45% m-o-m and 70% y-o-y, while second-hand transactions down 19% from last month and 37% from January last year.
While the Lunar New Year Holiday was surely a major cause of the January sales decrease, tight mortgage availability and a lack of new supply were also to be blamed. Contrary to traditional practice of loosening mortgage rates at the start of the year, state-owned banks such as Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Bank of China (BOC), as well as other regional banks, have tightened mortgages rules in January, with some of their branches raising mortgage rates to 5% – 30% above the benchmark rate for first-time buyers and 10% – 40% for second-home buyers.
On the other hand, a lack of new supply from developers also helped explain the sales decline. Many developers adopted a wait-and-see approach and held back on new project launches ahead of the holidays. There were only 7 new projects launched in Beijing during January, a sharp decrease compared with 24 new projects in December and 17 in January last year.
The New Year Holidays, as well as high mortgage rates and low supply are expected to remain in the near term and the property market is set for another quiet month in February. However, despite a slump in sales, home prices will remain at the current level or even increase when homebuyers return to the market in the Spring.