PRICES of new homes in China grew last year at the fastest rate since 2011, but moderated enough in December to calm fears of a speculative bubble bursting with disastrous economic consequences.
The price moderation will become a relief to China’s leaders as they wrestle with economic targets for 2017.
Sources have told Reuters that the government is prepared to accept a more modest growth target of 6.5 percent this year as leaders tackle a mountain of debt built up over years of heavy official borrowing to fund stimulus campaigns.
China depended heavily on the surging real estate market and government stimulus to drive economic expansion in 2016. Now it is widely expected to report tomorrow that it met its annual GDP growth target of 6.5 to 7 percent.
Analysts say two forward-looking figures — household loans and house sales — have been indicative of the cooling trend in the property market.
“There’s usually a two to three months’ lag between housing transactions and prices. And housing sales really began to fall quite precipitously in November,” said Jonas Short, head of investment bank NSBO’s Beijing office.
Average new home prices in 70 major cities rose 12.4 percent in December from a year earlier, compared to November’s record 12.6 percent rise, data from the National Bureau of Statistics (NBS) showed.
But 12 of 15 markets that had been singled out by authorities as overheating had price falls, a significant increase from November.
“Slow growth or slight price declines are exactly what the government wants,” said Short.
China’s average home prices are forecast to rise 4.1 percent in 2017, while growth in property investment would rise 5.4 percent, a State-owned newspaper reported earlier this month, citing the Chinese Academy of Social Sciences.
But authorities will be walking a fine line between curbing excessive price gains and clamping down too hard on a sector which accounts for about 15 percent of the economy.
After 2016’s record surge, further sharp gains may also require more aggressive policy curbs, adding to risks of a price crash and a sharp knock for the economy.
While supply in popular big markets remained low, China’s commercial housing inventory totaled 691 million square meters in November 2016, a mere 0.01 percent drop from the same time a year earlier, adding to headaches of policymakers who set destocking in smaller cities as a priority last year.
Yesterday’s data showed eye-popping price rises in 2016, despite a slowdown in growth late in the year.
Prices in Shenzhen, Shanghai and Beijing rose 23.5 percent, 26.5 percent and 25.9 percent from 2015.
“To buy a house in Shanghai, I definitely can’t do it alone, I’d need my parents to help,” said 28 year-old Barret Xu, a designer in Shanghai.
Even in some of China’s second-tier cities, investors are becoming wary of the potential risks from very high prices.
In Hefei, a long-time top price-rise performer, average new-home prices rose 46.3 percent in 2016, despite posting a 0.2 percent price decline on a monthly basis in December.
A Hefei homeowner who only gave his last name as Zhou, who already has three properties in the city, said prices have skyrocketed and he is not willing to bet further on that market.(SD-Agencies)