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China: House Price Controls to Continue
• Since April 17, China has tightened policy in
order to control housing prices, focusing on
suppressing investment and speculative
demand.
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Chart 1: Property Investment Continues
Accelerating (% YTD)
• Housing transactions have fallen
substantially but a significant correction in
house prices has not yet taken place.
• As China’s economic growth momentum
has weakened significantly, the market is
starting to speculate that housing policy will be
relaxed while banks are starting again to extend
mortgage loans for third houses and more.
• Our argument that there will be no relaxation
is underscored by government actions, with
three authorities reiterating that the policies to
rein in house prices are unchanged and that the
objective of controlling prices is intact.
• We expect the correction in house prices to
gain momentum; the housing industry may have
bottomed out by the end of the year.
Commercial banks in Shanghai, Nanjing, Hangzhou,
Shenzhen and Beijing are reported to have quietly
resumed the extension of mortgage loans for third
houses or more but with a deposit of more than 50%
and at a rate of more than 110% of the policy rate.
There has been much speculation that the authorities
will relax house price controls given the general
weakening in economic growth momentum and the
government's increasing concerns of ‘overcooling’.
The authorities said earlier this week that the
measures to control prices are not being rescinded.
The Ministry of Housing and Rural-Urban
Development reiterated that the government will
continue to implement the policies set out by the
state council on 17 April, and remains determined to
suppress investment and speculative demand in
housing. The ministry, however, supports increased
investment in the construction of ordinary and public
housing.
The CBRC, for its part, has clearly stated that there
is no change in mortgage loan policy for second
house and more, with all commercial banks required
to strictly abide by financial rules and regulations.
The State Asset Administration Commission (SAAC)
denied the reports saying it was requiring property
developers in state-owned enterprises (SOEs) to
aggressively acquire more land, restating that the
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Source: NBS, BNP Paribas
Residential property investment
Property investment
SAAC is demanding 76 central SOEs for which
property development is not their core business to
sell off their property development arms.
House price controls to continue
In fact, the objective of controlling house prices is far
from being achieved. Since 17 April, when the state
council announced its intention to stop housing
prices from rising too far too fast in some cities,
housing transaction have fallen substantially.
However, in tier-1 cities in particular, the correction in
house prices has not yet occurred – at most, it has
just started. This can be seen from the indicators of
property performance below.
Property investment growth continues to accelerate:
it came in at 39.6% y/y in Q2, up from 35.1% in Q1
(H1: 38.1% y/y). Residential housing investment,
which accounts for 69.3% of property investment,
accelerated from 33% y/y in Q1 to 35.1% in Q2 (H1:
34.4% y/y). Property space under construction
increased by 28.7% y/y in H1, but newly started
property space surged by 67.9% y/y. However,
completed property space increased by only 18.2%
y/y, and residential housing space completed rose by
15.5% (Chart 1).
Property transactions have fallen. Property sales
amounted to 394 million sqm in H1 10, up by 15.4%
y/y, but growth slowed from 35.8% y/y in Q1 to 5.4%
in Q2. Residential housing sales rose 12.7% y/y in
H1, but growth plunged from 34.2% in Q1 to 2.2%.
Sale values rose 25.4% y/y in H1 10, but the growth
rate also dropped sharply – from 57.7% y/y in Q1 to
10.1%. Housing sales increased by 20.3%, with
growth slowing to 4.4% in Q2 from 55.2% (Chart 2).
Xingdong Chen 16 July 2010
Market Mover
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