China’s National Bureau of Statistics (NBS) released its monthly report on home sale prices (LINK). The segregation of “15 First-tier Cities and Hot Second-tier Cities” in the NBS report implies that they will be the primary focus of government policy:
Intense market restrictions have kept prices flat in 2017 and the 12 month price change has dropped below zero:
With the reported annual change in the 15 focus markets around zero the environment may begin to normalize, but it’s not yet apparent what will characterize a “normal” market. President Xi Jinping recently reiterated policy that “Houses are built to be inhabited, not for speculation”
NBS data show that rapid price increases are no longer a problem. However price appreciation was tamed using policies (high downpayment requirements and increased mortgage rates) that made housing less affordable for ordinary people. At the same time strict regulations of presale prices made speculation more attractive for wealthy investors because risk is reduced when you are able to buy at artificially low levels. Several policy initiatives may address these problems:
- Minimum holding periods have recently been imposed in over 50 cities. These will be a bigger deterrent to speculators than occupiers.
- Likely introduction of property tax will discourage accumulation of idle property investments.
- Increased land supply should balance long-term demand in the “hot” cities where strong economies are attracting migrants. In addition to auction sales, densely populated top tier markets are trying to accelerate redevelopment efforts.
- Rental markets will be supported with policies that may include favorable access to land, tax relief, and encouragement of professional property ownership and management of rental housing. These measures may create opportunities for development of businesses resembling apartment REITs in the US.
Relatively strong economic growth (GDP +6.9% ytd in 3Q17) affords China the opportunity to reform its housing markets without excessive concern about possible adverse impacts on GDP or financial system stability. If growth were to weaken over the next year then relaxation of housing market restrictions would become more likely.