Real Estate Policies Drive Negative Price Growth in China’s Big Cities

Efforts by Chinese regulators to curb overheating urban property markets are taking effect, with a slew of major cities including Shanghai and Nanjing posting negative growth in new home prices last month.

Data released by China’s National Bureau of Statistics on 18 May for 70 large and medium-sized urban centres indicates that the pace of growth in new housing prices in 15 first-tier cities and a number of “hot spot” second tier cities slowed markedly in April.

9 of the cities even saw new home prices either hold steady or post negative growth compared to the preceding month, including Shanghai, Fuzhou, Hefei and Nanjing.

First-tier cities have seen easing  growth in new home price gains for seven successive months now, with a fall of 2.8 percentage points in April compared to March.

In some jurisdictions the deceleration has been particularly pronounced, with growth in Beijing new home prices falling from 20.6% in March to 17.4% in April.

According to Liu Jianwei, a senior analyst with NBS,the price declines are the result of ongoing real-estate adjustment policies introduced by local regulators to cool down the market.

Over 40 municipal governments have already introduced real estate tightening policies, with many such as Beijing and Chongqing further expanding their purview in April and May.

Property analysts note that price gains are gathering pace in China’s third and fourth-tier cities as constraints on property investment in the big urban centres drives idle money elsewhere.

Third tier cities saw the pace of growth in new him enriches expand 0.4 percentage points in April compared to March, while most of the cities covered by NBS data that were in the top ten for new home price growth were third or fourth-tier urban centres, including Yichang, Beihai, Shenyang, Yangzhou, Jinhua, Kunming, Xi’an and Shaoguan.

Analysts anticipate mounting regulatory constraints

While the real estate adjustment policies have already had an impact on price trends in China’s major cities, analysts expect no relent in the intervention of regulators.

Mai Dan, a senior researcher from the Bank of Communications Financial Research Centre, said to Shanghai Securities Journal that the “peak” real estate policy hasn’t yet arrived, and that regulators will continue to deepen their adjustments.

This will put pressure on transaction volumes over the next several months, and home price growth trends will continue to diverge.

“Subsequently policies will continue to expand their scope, the number of cities with controls will continue to increase, and the target of overall market adjustments is obviously to restrain regions where home price growth is excessively rapid,” said Zhang Dawei, an analyst with Centaline Property Agency.