24 March 2014
JEDDAH - The property market in China softened again in February. This is the second straight month property prices in 70 Chinese cities moderated after slowing for the first time in nearly two years in January, a new report by Kuwait-based Asiya Investments, a subsidiary of KCIC, said Sunday.
Property prices decelerated from 9.6 percent year-on-year in January to 8.7 percent in February. Housing inflation is still relatively high, but property prices in tier 1 cities are starting to cool down.
In Beijing, prices decelerated from 14.7 percent year-on-year in January to 12.2 percent in February, in Shanghai from 17.5 percent to 15.7 percent year-on-year, in Guangzhou from 18.6 percent to 15.7 percent year-on-year and in Shenzhen from 17.8 percent to 15.6 percent year-on-year. The same is also occurring in tier 2 cities and in the rest of the country.
The government has been trying to curb the real estate bubble that has been fueled by speculation since last year. Measures to help control speculative buying included introducing a tax on capital gains made on home sales, tightening mortgage guidelines and barring residents from owning more than two homes.
Additionally, the government's fight against corruption also has been affecting demand for high-end property. However, there is real property demand growth in China, and the government must support it while tackling prices.
Authorities in Beijing already planned to introduce 70,000 homes for middle-income families which are planned to cost a third lower than the average residential property price. By tackling speculation while increasing real estate supply, property inflation is set to ease to more moderate levels.
The indicator is made up by calculating the property prices of each of the top 70 medium and large Chinese cities, and then averaging them by weight. It shows that housing inflation bottomed in May 2012 and that it is currently peaking, according to China's National Bureau of Statistics. Property prices were still higher compared to the same month last year across all 70 cities except one in February. This is occurring amongst residential (both new and second-hand) and commercial properties. Second-hand homes are the most susceptible to speculation, which explains why they are the first to see their prices rise or fall at the start of each cycle.
The rise in Chinese property prices is still taking place across China and across all type of property, but at a decelerating rate. Because of the government crackdown, second-hand homes are likeliest to lose value at a faster rate than the rest.
A new long-term urbanization plan announced this month targets an increase in the urbanization rate. According to the plan, the urban hukou (household registration permits) ratio is targeted to increase from 35.3 percent in 2012 to 45 percent by 2020, the equivalent of around 160 million people. Also, 60 percent of the population is planned to be a permanent urban resident by 2020. The rate is faster than in previous decades.
The government has a serious task to create enough supply to meet the sharp rise in real estate demand without creating a housing bubble. Going forward, there will be a lot of inflationary pressures in the Chinese real estate market and the government will continue to have a role of controlling housing inflation.
The government is also trying to reform and liberalize the country's financial sector. Although it is a long-term plan, the impact is already noticeable, and this will have a disinflationary impact on house prices. Many firms and property developers currently finance themselves through unconventional channels. Increasing regulation over these channels is driving these companies to improve their cash flows and to sell more rapidly at lower prices. This is apparent already in Hangzhou, Changzhou and Ningbo.
Expect more of this in 2014 and onwards. Furthermore, tight capital controls make it difficult for residents to invest in foreign bonds, and foreign and domestic equities. Real estate is one of the few alternatives that Chinese individuals have to park their savings without losing purchase power. The government is expected to gradually loosen its grip on capital controls in the medium run. This will allow individuals to start investing elsewhere. This is another major reason why property prices may remain subdued, which may accelerate the country's urbanization through more affordable housing.
The Chinese government will be implementing a long-term urbanization plan, and controlling real estate prices will be crucial to the plan's success. Liberalizing its financial sector and relaxing capital controls will facilitate its long-term goal. As such, we are confident that China's long-term reform plans are realistic, creating a new set of investment opportunities.
JEDDAH - The property market in China softened again in February. This is the second straight month property prices in 70 Chinese cities moderated after slowing for the first time in nearly two years in January, a new report by Kuwait-based Asiya Investments, a subsidiary of KCIC, said Sunday.
Property prices decelerated from 9.6 percent year-on-year in January to 8.7 percent in February. Housing inflation is still relatively high, but property prices in tier 1 cities are starting to cool down.
In Beijing, prices decelerated from 14.7 percent year-on-year in January to 12.2 percent in February, in Shanghai from 17.5 percent to 15.7 percent year-on-year, in Guangzhou from 18.6 percent to 15.7 percent year-on-year and in Shenzhen from 17.8 percent to 15.6 percent year-on-year. The same is also occurring in tier 2 cities and in the rest of the country.
The government has been trying to curb the real estate bubble that has been fueled by speculation since last year. Measures to help control speculative buying included introducing a tax on capital gains made on home sales, tightening mortgage guidelines and barring residents from owning more than two homes.
Additionally, the government's fight against corruption also has been affecting demand for high-end property. However, there is real property demand growth in China, and the government must support it while tackling prices.
Authorities in Beijing already planned to introduce 70,000 homes for middle-income families which are planned to cost a third lower than the average residential property price. By tackling speculation while increasing real estate supply, property inflation is set to ease to more moderate levels.
The indicator is made up by calculating the property prices of each of the top 70 medium and large Chinese cities, and then averaging them by weight. It shows that housing inflation bottomed in May 2012 and that it is currently peaking, according to China's National Bureau of Statistics. Property prices were still higher compared to the same month last year across all 70 cities except one in February. This is occurring amongst residential (both new and second-hand) and commercial properties. Second-hand homes are the most susceptible to speculation, which explains why they are the first to see their prices rise or fall at the start of each cycle.
The rise in Chinese property prices is still taking place across China and across all type of property, but at a decelerating rate. Because of the government crackdown, second-hand homes are likeliest to lose value at a faster rate than the rest.
A new long-term urbanization plan announced this month targets an increase in the urbanization rate. According to the plan, the urban hukou (household registration permits) ratio is targeted to increase from 35.3 percent in 2012 to 45 percent by 2020, the equivalent of around 160 million people. Also, 60 percent of the population is planned to be a permanent urban resident by 2020. The rate is faster than in previous decades.
The government has a serious task to create enough supply to meet the sharp rise in real estate demand without creating a housing bubble. Going forward, there will be a lot of inflationary pressures in the Chinese real estate market and the government will continue to have a role of controlling housing inflation.
The government is also trying to reform and liberalize the country's financial sector. Although it is a long-term plan, the impact is already noticeable, and this will have a disinflationary impact on house prices. Many firms and property developers currently finance themselves through unconventional channels. Increasing regulation over these channels is driving these companies to improve their cash flows and to sell more rapidly at lower prices. This is apparent already in Hangzhou, Changzhou and Ningbo.
Expect more of this in 2014 and onwards. Furthermore, tight capital controls make it difficult for residents to invest in foreign bonds, and foreign and domestic equities. Real estate is one of the few alternatives that Chinese individuals have to park their savings without losing purchase power. The government is expected to gradually loosen its grip on capital controls in the medium run. This will allow individuals to start investing elsewhere. This is another major reason why property prices may remain subdued, which may accelerate the country's urbanization through more affordable housing.
The Chinese government will be implementing a long-term urbanization plan, and controlling real estate prices will be crucial to the plan's success. Liberalizing its financial sector and relaxing capital controls will facilitate its long-term goal. As such, we are confident that China's long-term reform plans are realistic, creating a new set of investment opportunities.
© The Saudi Gazette 2014
