A new year a new market norm?

19 January 2017

“December data reinforces the previous two months of data that indicated a rapid slow down in the price growth in some leading cities, especially those that recorded faster growth for the majority of 2016. The vast majority of cities recorded growth or declines within a very narrow band as pricing stabilised towards year end.” said James Macdonald, Head of China Research

Overview
In December, 46 of the 70 cities recorded month-on-month (MoM) increases in first-hand commodity residential prices, compared with 55 cities in November. Four cities recorded no change, while 20 recorded price decreases.

The four cities with the largest increases were: Sanya (1.2%), Chongqing (1.1%), Yangzhou (0.9%), and Shaoguan (0.9%).

The six cities with the largest decreases were Shenzhen (-0.4%), Nanchang (-0.4%), Dandong (-0.4%), Fuzhou (-0.4%), Wuhan (-0.3%) and Jinan (-0.3%).

On average, the 70 cities prices increased by 0.26% in December, the twentieth consecutive MoM increase for the 70 city index, but down from 0.59% in November. Average prices are currently up 10.81% year-on-year (YoY), and up 12.74% compared with December 2010 when the index was first established.

First-tier city analysis
First-tier cities recorded no growth in December, as cooling measures introduced in the final quarter combined with stricter enforcement of existing regulations brought about a rapid slowdown in the price growth that had been seen for much of the year. December also represents the slowest pace of price growth of any city tier.

Once the laggard among first-tier cities, Guangzhou was the only first-tier city to record growth in December, increasing 0.7% MoM, although it continues to have the lowest growth since the index first began. The other first-tier cities, all recorded moderate declines, with Shenzhen now having fallen 1.2% since its peak in September 2016.

First-tier cities continue to have some of the lowest levels of unsold inventory, the most vibrant economies and job markets, as well as some of the strongest demand for housing. Despite this, increasing unaffordability as well as stricter lending criteria and purchasing restrictions have tempered short-term growth, allowing these markets to consolidate recent home price increases.

City tier analysis
All city tiers recorded a slowdown in price growth in December, with second-tier cities slowing the most. First-tier cities were the only market to record no growth in December, with fourth-tier cities recording the strongest growth of 0.42% MoM.

First- and second-tier cities
The four best performing second-tier cities in November were Chongqing (1.1%), Xi'an (0.7%), Shenyang (0.6%) and Dalian (0.1%).

While most second-tier cities, and indeed the majority of cities (51), recorded a third month of slowing growth, two second-tier cities saw a pick up in price growth in December, namely Shenyang (0.5 ppts) and Hangzhou (0.4 ppts).

Regional analysis
All regions recorded growth in December, while only the north east recorded an acceleration in price growth. Growth in Central China slowed the most, decelerating 63 bps to just 0.21%.

The north east region, while still one of the weakest regions in China was the only one to record accelerated growth (12 bps), primarily due to Harbin (0.8%, 1.0 ppts), Shenyang (0.6%, 0.5 ppts), Jilin (0.4%, 0.5 ppts), and Mudanjiang (0.3%, 0.5 ppts).

Outlook
The market has been turned on its head by the new policies introduced in the final quarter of the year. Many developers did not respond immediately to the measures and any market fluctuations, with most reaching or exceeding sales targets. The top 20 developers accounted for close to 25% of China wide sales in 2016 with combined sales of RMB2.98 trillion, up 52% YoY. Nevertheless, these developers will have a guarded outlook of 2017 in terms of possible strategies required to overcome market challenges or due to the need to adjust targets down to more manageable levels.

The policy environment is likely to remain passive in 2017, especially in the first half of the year with sales volumes and price growth rates having moderated significantly in the last three months. Volumes could remain subdued for a sustained period of time with expectations that 2017 could see a 20-30% reduction in volumes and a 0-5% decline in values.

While it is important that individual cities have the ability to introduce policies to affect supply and demand levels as well as price growth, the increasingly convoluted and varied nature of these measures is making it harder to understand and navigate China’s property market, for investors, developers and home owners alike. At some point in the not too distant future, there needs to be a comprehensive review of the different land management and price cooling measures that have been tried and tested in individual locations, with the best and most effective measures actively promoted by a central authority to city governments as a toolkit for local policy makers and administrators. There should also be, if there is not already, a central resource that tracks and reports on policy changes with regards to property and land markets, not just at a national level but at a provincial, city and district level too. Increased transparency and consistency is needed in a market which remains such an important pillar to the economic health of the nation.

Bibliography
National Bureau of Statictics. [Online] http://www.stats.gov.cn/enGliSH/.
Savills Research. [Online] http://en.savills.com.cn/.

 
 

Key Contacts

Olivia Shao

Olivia Shao

Director
Marketing & Communications, Savills China

Savills Shanghai

+8621 6391 6688 Ext.8893