August 2018 NBS Price Data in Leading Chinese Cities

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:

China HPR Markets Aug 2018 NBS

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).

China HPR Markets Aug 2018 NBS Average Change

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.

Chin NBS Top Bottom Aug 2018

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.

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3 thoughts on “August 2018 NBS Price Data in Leading Chinese Cities

  1. John, I have been following your post for quite a while now and really value your thorough research on XIN and the environment in which they operate. I have been in and out of
    XIN for over 10 years. (along with several other Chinese companies that went to 0)
    My concern has always been the validity of there accounting given their CFO stream.
    My question is do you think, given the flow through of their accounting changes and what seems to be a positive selling environment that XIN could have a blowout 4th qt. From
    my very narrow view of this market it really looks like the stars are lining up for a very big number.
    Am I missing something?

    Like

    1. Are you expecting strong 4Q contract sales or revenues/profits? The company guidance is for strong 4Q Net Income. Under the new accounting rule revenues are recognized when completed units are delivered to buyers and we don’t know which projects will be finished in 4Q. You might be able to look them up one by one on sites like fang.com.

      Like

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