One of China’s largest property magnates, Wang Jianlin, warned this week that his country’s property market was the “biggest bubble in history”. But home buyers in key Chinese cities in September showed scant regard for such warnings, maintaining a frenetic pace of purchases.
Preliminary data for the month show that residential floor space sold in 52 cities rose 26 per cent in the first 25 days of September (see the first chart), in line with August’s 27 per cent increase and higher than July’s 13 per cent expansion, according to data collected from local land bureaus by NSBO, a China-focused investment bank.
The FT Confidential Research China Real Estate index — a leading indicator based on surveys of property sales offices in 40 cities — rose to its second highest reading this year after a record spike in March and showed that sales, inquiries and prices all rose sharply in September.
Official data from China’s National Bureau of Statistics (NBS) on national real estate sales during September are not announced until early October, but the smaller data series from 52 cities and the FT Confidential Research surveys have shown a strong correlation with the national numbers.
So crucial is real estate to China’s growth cycle that September’s numbers define the outlook for the world’s second-largest economy.
“Housing acts as something of an economic fulcrum that exerts an outsized influence over China’s banks, heavy industries, builders and households,” wrote Eric Lascelles, chief economist at RBC Global Asset Management on beyondbrics, the FT’s emerging markets forum.
“We figure it is directly or indirectly responsible for a whopping 19 per cent of China’s economic output,” Mr Lascelles added.
According to RBC estimates, so key is real estate to China’s overall fortunes that a 10 per cent drop in housing activity and home prices would subtract as much as 5 percentage points from China’s headline GDP, making the difference between growth and contraction.
Data collected from the land bureaus in 52 cities showed a divergence between city tiers. In China’s four first-tier cities — Beijing, Shanghai, Guangzhou and Shenzhen — home sales actually fell 9 per cent in September year on year, down from a 15 per cent growth rate posted in August.
Second-tier cities, which are defined as provincial capitals and municipalities such as Chongqing, recorded a 29 per cent growth in sales, the same as in August.
Third-tier cities, which group important centres below the provincial capital level, saw a 31 per cent surge in sales, up from 23 per cent in August. Overall, measured by square metres sold, activity remained in an upswing across the three city tiers (see second chart).
But in spite of the fizz, the longer-term outlook for the residential property market is growing more complicated. Not only is Mr Wang — whose company, Dalian Wanda Commercial Properties, is China’s largest commercial property developer — raising the alarm, local governments are increasingly trying to damp down activity.
In an interview with CNN Money, Mr Wang said that while property prices keep rising in large cities such as Shanghai, they are falling in some smaller cities where huge numbers of properties lie empty.
“I don’t see a good solution to this problem,” Mr Wang was quoted as saying. “The government has come up with all sorts of measures — limiting purchase or credit — but none have worked.”
I don’t see a good solution to this problem … The government has come up with all sorts of measures, but none have worked
Part of the issue concerns rising levels of leverage within the sector, raising the risk of knock-on effects through the financial system from any slump in real estate sales and prices. Capital Economics estimates that Rmb24tn ($3.6tn) in direct loans are outstanding to the sector.
“The problem is the economy hasn’t bottomed out,” Mr Wang was quoted as saying. “If we remove leverage too fast, the economy may suffer further. So we’ll have to wait until the economy is back on the track of rebounding — that’s when we gradually reduce leverage and debts.”
He added, though, that he is not predicting a “hard landing” for China’s economy, CNN said.
Still, intimations of concern are rippling across China. Nanjing became the first second-tier city to reinstate strict home purchase restrictions this month, limiting local resident permit holders to owning no more than two properties in the core city and non-locals to no more than one.
Hangzhou, Suzhou and Xiamen have also reimposed partial home purchase restrictions, while some other cities are taking measures to boost the supply of housing, thereby attempting to stabilise prices.
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