China’s National Bureau of Statistics (NBS) released its monthly report on home sale prices (LINK). The segregation of “15 Hot Cities” in the NBS report implies that they will be the primary focus of government policy:
Intense market restrictions kept prices flat for many months in these key markets, but the average has been boosted by a clear rebound recently in some of the Tier 2 markets (Zhengzhou, Jinan, Chengdu, and Wuhan).
Segregating the 10 strongest and weakest of the 70 markets covered by NBS data shows that most of the cities with the strongest recent prices include former laggards in regions with weaker economies and stagnant population, but gentler application of housing market policies. The weakest prices have been in the largest and formerly hottest markets, particularly in the Yangtze River Delta area. Those cities have strong economies, growing populations, and cultural appeal that should sustain long-term housing demand.
Strength in Haikou and Sanya is explained by promotion of a new free trade zone and recently attracted negative attention. Strength in Dandong is explained by that city’s role as a key conduit for trade with North Korea that may benefit from an easing of sanctions.
NBS data in major markets show that rapid price increases are no longer a problem. However price appreciation was tamed using policies (e.g. 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.
Strong economic conditions in 2017 and early 2018 gave the government an opportunity to restrict unhealthy real estate speculation and excessive leverage. A recent softening in the economy and uncertainty resulting from trade tensions have led to clear shift towards fiscal and monetary easing that seems to have been accompanied by a relaxation of housing regulations without any formal announcements. Xinyuan Real Estate is heavily exposed to Tier 2 markets and explained in its 2Q18 conference call that it saw policy relaxation begin in July.
Media coverage of China real estate usually highlights the average of the price changes from 70 cities (example). This is easily calculated from the NBS report, but equally weighting 70 cities exaggerates the importance of smaller cities with weaker economies and lower home prices. For comparison, the top US metropolitan markets are Los Angeles and New York City while the 69th and 70th are Albany and Tuscon.