China: Property Prices Momentum Building - Westpac
Elliot Clarke, Research Analyst at Westpac, suggests that according to the Chinese 70 city property prices for March 2016, momentum is building within each tier; but Tier 1 gains still highly disproportionate.
“China’s 70city property prices are a timely indicator of momentum. This indicator’s particular strength is its disaggregated nature, offering perspective on momentum in multiple tiers of key cities across the nation.
Through late2015 and to date in 2016, the primary theme for Chinese housing has been robust momentum in Tier 1 cities (the most developed and wealthy) and a comparative absence of growth in Tier 2 and Tier 3 – where the bulk of construction activity takes place.
This theme continued in March, with a material divergence apparent, both for new and secondary property.
Where Tier 1 new build prices have risen 29%yr, Tier 2 and Tier 3 are respectively up 4%yr and 1%yr. Even within Tier 1 there is a marked divergence: Shenzhen prices have reportedly risen 62%yr and Shanghai is up 26%yr; in contrast, Guangzhou and Beijing have gained a comparatively modest 15%yr.
A similar theme can also be seen in the secondary market, with prices up: 36%yr in Tier 1; 4%yr in Tier 2; and 1%yr in Tier 3. Again, within Tier 1, Shenzhen is well ahead of the rest; however, growth amongst the rest of the top tier is broader based than for new builds.
While there are some outliers in Tier 2 and 3, for the most part price gains in those cities are relatively close to the tier averages, indicating the soft conditions in these jurisdictions are broad based.
The consequence for the aggregate economy is that, while momentum is strengthening and broadening within each of the tiers, conditions are not yet strong enough to warrant a material acceleration in aggregate new project activity.
For policy makers, the state of the aggregate property market arguably calls for further accommodation. Yet authorities have to be cautious of exuberance in Tier 1. This balancing act will likely keep a lid on secondary sector activity through mid2016, as authorities take a cautious and measured approach to accommodation.”
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