Has home market seen downward pattern?

Amid the stricter control measures on residential market, housing prices in Beijing were still hovering at record high levels in January and February this year while those in Shanghai and Guangzhou have shown a mild slowdown. Purchase sentiment is not entirely dampened around the nation even the government tightened mortgage loans and house purchases again last year, given that there is strong end-user demand in the market. Although the government further curbed the markets in first and second tier cities in the past six months, the overall housing market did not see signs of slowdown.

According to the data from the National Bureau of Statistics, the value of home sold was RMB 912 billion during January to February, up 22.7% from the same period last year, showing that the housing market is remaining resilient. Not only the demand in first and second tier cities is strong, but also prices in some of the third and fourth tier cities have started to pick up, supported by policies implemented to help destock unsold housing inventory. The vibrant market as revealed by the statistics has prompted top policy makers to reiterate a pledge of developing a stable property market and curbing property speculation at the National People’s Congress in March, highlighting that they will increase land supply and fine-tune controls on development, marketing and agency activities in cities with overheating prices.

With the upbeat housing market as shown by the rising home sales volume and home prices, there are signs that developers are kicking off restocking of residential property despite the fact that curbs on residential property market still remain. Investment on residential building increased by 9.0% y-o-y in January-February, contributing to a growth of 8.9% for the overall real estate investment over the same period. Since the inventory level of first and second tier cities is now just around 12 months while that of third and fourth tier cities has dropped to 20 months from the peak of 30 months, developers are starting new projects in order to restock housing inventory, adding support to the economic growth.

We believe that the government will remain different policies for each city given the significant differences among their market conditions, as revealed by their latest work report. In short term the governments in first and second tier cities are likely to maintain the restrictive measures to curb investment and speculative demand and prevent an overheating of prices. Since the effects of increasing land supply will take time to realise, housing price is expected to still remain at high level under the strong end-user demand. Substantial fall in price is unlikely to happen owing to the robust fundamentals of the market.

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