China’s property market shows signs of slowing as house prices come off the boil

An aerial view of Shanghai

China’s booming property market is showing further signs of cooling with official data finding another step down in price inflation and more cities reporting price declines in July.

In the 70 cities surveyed by the National Bureau of Statistics (NBS), 51 reported price gains in new houses, down from 55 in June and a peak of 65 in April.

Sixteen cities reported price declines, while three remained unchanged. It is the fourth consecutive month that the number of cities reporting price declines has increased.

The NBS noted that house price growth “continued to abate” and the slowest price increases were commonly in the most overheated markets.

While the data adds weight to the argument that one of the key drivers of the Chinese economy is losing steam, it will be welcomed by policy makers who have been worried about an alarming property bubble developing.

There has been a noticeable tightening of restrictions on home buying at the local government level in recent months, which is having the sharpest impact away from the big cities.

“The recent policy tightening could curb rapid home price growth,” David Yang, a Shanghai-based analyst at UOB Kay Hian Investment told Bloomberg.

“Local policies will see further divergence as surging home prices and land costs trigger more tightening rules,” Mr Yang said.

On analysis from Bloomberg, average new home prices rose 0.7 per cent in July, broadly in line with the increase in June.

House prices in less developed cities growing well below 10pc

While gains are still spectacular, they are slowing.

“Splitting the 70 cities into the three development tiers, tier one continues to experience a robust pace of price growth — an average of 27 over the year for new housing and 29 per cent for the secondary market,” Westpac senior economist Elliot Clarke said.

In results that would make Sydney and Melbourne property markets look recessionary, new property prices in Shenzhen grew at 41 per cent over the year to July, although this is a significant pull back from the 63 per cent annualised figure for April.

Mr Clarke noted Shanghai price growth had plateaued at around 28 per cent over the year, as had Beijing and Guangzhou — albeit nearer to 20 per cent.

However, the less-developed tier two and tier three cities now appear stuck in a rut.

Tier two cities reported price growth in new and established houses of 7.8 per cent and 6.7 per cent respectively, while in tier three the rises were 3.8 per cent and 2.4 per cent over the year.

“Clearly activity is concentrated in the most established and wealthy markets, where there is likely to be a greater speculative element,” Mr Clarke said.

“The problem is that these are not the cities with the greatest growth potential.

“Further on aggregate activity, we note finally that momentum in housing sales and starts has already turned down.”

Mr Clarke said the outlook for real estate investment in late-2016 and into 2017 was fragile and unlikely to provide a significant contribution to aggregate growth.

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