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 recently been boosted by a clear rebound in some of the Tier 2 cities (e.g. 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.
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 a clear shift towards fiscal and monetary easing that seems to have been accompanied in some cities by a relaxation of housing regulations without any formal announcements. Detailed perspective on conditions in different cities is available in this recent CRIC commentary Anecdotal evidence suggests that prices in some smaller cities not covered by NBS data were very strong in 2017 and have been very weak recently.
NBS data showed that commercial real estate sales volume in November 2018 fell 5.1% by area and rose 8.8% by value compared to November 2017. Consumer sentiment about the economic outlook is cautious and homebuyers took a “wait and see” approach. Developers responded with promotional activities that gave the impression of rampant discounting without actually lowering prices on a broad scale. Many larger and listed companies that report monthly contract sales value showed strong year-over-year performance in November (e.g. Yuzhou +140%, R&F +145%, and SCE +140%).
The Chinese government has been introducing a broad range of supportive policies to ease financial conditions, increase public confidence, and boost consumer spending. These measures should improve homebuyer sentiment. Broad easing of housing regulations is possible if the economy weakens further.
The government also appears to be easing access to financing by property developers to avert a credit crunch in the sector. The NDRC issued new rules to simplify bond issuance by larger and better quality companies. Bonds of some smaller and lower rated issuers (e.g. Fantasia, Xinyuan, and Modern Land) have been rallying. Fantasia was just able to place a new 3 year bond at a yield of 15%, even though its Feb 2019 bonds were yielding over 20% last month.