Property

China Property Market’s General Trend In 2016

China Property Market’s General Trend In 2016In the last issue of China Insight, we have reviewed the 2015 China property market, and in this issue, we can take a look at how the current situation and some of the ongoing speculations will have an effect on the 2016 market.

From the country’s leaders’ repeated announcements, we can expect a careful focus to be put on the property market, to help sustain and perhaps further develop the market which has become the country’s most important economic driver and where most of the citizens’ wealth are.

Prices of Tier-1 cities have been surging in 2015 as investors flock to the cities due to the many stimulus policies and reducing cost of taking a loan. Therefore, apart from the home-buying restrictions, prospective investors face yet another obstacle when entering the Tier-1 city property market, ie. sky-high prices. Out of the four Tier-1 cities, only Guangzhou’s urban area has a price level of around or less than RMB 40,000 per sqm. The average price of Guangzhou’s Yue Xiu district has risen more than 8% in 2015 to over RMB 41,000 per sqm in December while the price for the adjacent Li Wan district rose more than 30% in the same period. Home prices in the Tier-1 cities have been rising out of sync with the local residents’ income level, and hence, a bubble is gradually forming in these cities’ property markets. The high home prices are becoming one of the reasons why job-seekers are avoiding tier-1 cities, and as RMB devalues, the value of the properties against foreign currencies slowly vaporises.

Yet, demand will continue to be stimulated by the government’s policy to sustain the property market in 2016. Although home prices in Tier-1 cities are growing unaffordably high, with such high land sale prices recorded in Tier-1 cities in 2015, it is unlikely for developers to lower home prices, and as Tier-3 or 4 cities are too underdeveloped, many investors or prospective home-owners may turn to the better urbanised Tier-2 cities, such as cities in the Pearl Delta region.

Further investigation will be carried out on property prices in the Pearl Delta region in the coming issue of China Insight.