Despite Chinese government efforts to tamp down housing prices in the country, analysts predict a continued rise in home prices in major Chinese cities due to strong demand for residential property.
That demand is being driven by improved personal income levels, low supply and an accommodating credit environment, industry observers said. Further, as wealth levels rise, families are inclined to own multiple homes, Ding Shuang, chief China economist at Standard Chartered Bank, said at a recent industry conference.
"With the rapid economic growth [in China,] the accumulation of wealth is massive. But there are limited investment channels [for this liquidity and] people are not that confident about the stock market at this stage, so housing is still a major investment tool for them," Ding added.
China's housing sector has boomed in the last two years, and prices have risen steeply in most first- and second-tier cities. Shanghai has seen new home prices rise 45% since 2015, while Shenzhen and Beijing respectively saw 46% and 35% increases in the same period, according to China's National Bureau of Statistics.
Since late 2016, the Chinese government has rolled out a series of tightening measures aimed at curbing speculative investment activities and preventing a property bubble, including higher minimum down payments, restrictions on purchases by non-local residents and price controls in major cities.
Monthly price increases peaked in September 2016. Since then, home price increases have softened, but prices have yet to decline.
Developers' sales figures also reflect the strong demand.
"We are positive about the property market next year; the actual market sentiment is even firmer than what the government figures reveal," Toni Ho, a property analyst at Rhb Osk Securities, said in an interview.
Ho said current cooling measures have only affected sporadic residential transactions and have yet to push prices down significantly. Prices in first- and second-tier cities will remain strong due to the sustainable demand and tight supply, he added.
In a report, Nomura's China property analysts, led by Elly Chen, said many first- and second-tier cities are facing severe undersupply. They estimate that it will take nine months to sell the inventory of new homes in first-tier cities and under eight months in second-tier cities. In contrast, when markets were facing peak oversupply in 2013 and 2014, clearing stock took 13.2 months and 15.4 months, respectively, for first- and second-tier cities.
The Nomura team also noted that there likely will not be any meaningful short-term increase in land supply because city governments, which control land stock, can reduce land supply and raise land prices to maximize their long-term sales revenues.
Nomura predicts that national home prices will climb by 5% in 2018, aided by higher prices in big cities, while Rhb Osk Securities expects a more modest 1% increase.
Analysts also noted that credit is still relatively easy to come by for purchasers and developers. Mortgage rates have only increased mildly, as most banks still provide mortgages around the benchmark rate of 5% to individual first-time home buyers, compared to the peak of around 7% in 2013. Large developers are also able to access various financing channels at relatively low costs.
David Hong, head of research at China Real Estate Information Corp., said that most developers are not incentivized to cut prices even though the government has imposed strict price caps on residential developments in large cities. In major cities such as Beijing and Shanghai, builders that do not adhere to the price ceiling set by the local government will be denied presale permits.
Hong said cash-rich developers would rather postpone their sales plans, banking on the premise that local governments will not keep all high-end projects from coming onto the market for a sustained period of time.
"Margins are already quite low for developers due to pricey land costs; they are unlikely to do loss-making business," Hong said, adding that some cities have already resumed sales approvals for such premium projects.
Standard Chartered's Ding noted that the government's current measures are aimed at decreasing transactions in the short term to keep prices from overheating. "Long-term policies, such as introducing property taxes and build-to-rent projects, need to be established to truly stabilize prices," he added.
As of Dec. 19, US$1 is equivalent to 6.60 yuan.
