China: Semblance of stability for housing sector - Westpac

Having slowed materially in recent months, China’s price growth stabilised in October as investment data points to a further slowdown for the sector, explains Elliot Clarke, Research Analyst at Westpac.

Key Quotes

“Following a rapid slowing in price momentum in August and September, October saw renewed stability across the three tiers, in both new and existing housing.”

“For new housing, the number of cities reporting monthly price gains rose from 44 to 50 – just below the average of the past 12 months. In contrast, the number of cities reporting price declines fell from 17 to 14 – just above the average of the past 12 months.”

“It remains the case that current momentum in tier 1 is weaker than tier 2 or 3. In tier 1, annual price growth for new housing is now just 0.9%yr, down from 1.5%yr a month ago and 29%yr a year prior. Secondary house price growth has similarly moderated from 33%yr to 3%yr since September 2016.”

“Of the tier 1 cities, modest price declines are being seen in Shenzhen (–3%yr), but growth is broadly flat in Beijing and Shanghai and still positive in Guangzhou (8%yr). For the secondary market, prices in all tier 1 cities except Guangzhou (+13%yr) are unchanged over the year.”

“For tier 2 and 3, annual price growth for new housing remains solid, respectively 5%yr and 6%yr. Existing market price growth has also held up around 5%yr. However, being a much more diverse set of cities, there is a much larger spread of outcomes:–1%yr to +13%yr for tier 2; and –1%yr to 15%yr in tier 3.”

“Central to our expectation that GDP growth will decelerate from 6.8% in 2017 to 6.2% in 2018 is the clear downtrend in real estate investment.”

“While the annual rate for fixed asset investment has held up through 2017, sales and starts are both continuing to trend lower. Indeed, on a three-month average basis, annual growth dipped below zero in October. Annual growth in floor space under construction also remains soft versus history.”

“As we have highlighted previously, developers remain positive over the outlook, continuing to bid for land to maintain an investment pipeline. But they are only undertaking new construction at a measured pace, in keeping both with the will of authorities and the underlying demand conditions of each tier.”