Slower Home Price Growth and  Weaker RenminbiAsome 3.0% depreciation in Renminbi (RMB) was seen in the past few months, reversing the rising trend since January this year, against a weaker housing market performance over the same period, triggering market concern over any possible impacts of falling RMB on home price.

In fact, RMB appreciation may not lead to home price growth, and vice versa. More than 35% increase in RMB value was observed during the eight-year period from 2006 to 2013, following China’s RMB reform since 2005, compared with the doubling in home price value. Nevertheless, RMB and home price was negatively correlated in 2008 during the same period. And a significant annual property price rally of 24.7% at RMB 4,459 per square meters was recorded in 2009, with a nearly flat annual growth in RMB value.

Given the current fair financial condition in most developers, significant impacts on home price due mainly to weaker currency are waited to be seen. Meanwhile, amid the capital account inconvertibility in China under the current foreign exchange regime, cross-broader capital should be harder to flow freely.

Meanwhile, chance to have a sell-off in China housing should remain thin, amid the surging capital funding costs in many home purchasers, especially those using overseas capital or even hot money, given the imposition of home purchase austerity measures in recent years. Nonetheless, developers would likely to set higher asking prices in their new property project launch, since their costs of capital would likely to rebound, should Renminbi have long-term deprecation.

As such, home prices in the second half of 2014 will very much depend on the strength of government property purchase measures. We see market attention will be on new project launch in Guangzhou sub-urban areas, as well as commercial property market in both Beijing and Shenzhen.