Housing prices soar in China’s big cities

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/14

The National Bureau of Statistics reports that prices of new apartments in February were up an average of 13 % y-o-y in Beijing, 21 % in Shanghai and 57 % in Shenzhen. The strong rise in prices in big cities has pulled up national housing market trends. The volume of new apartment buildings under construction increased 10 % y-o-y in the first two months of this year. On the other hand, the diverging trend between large and small cities has become sharper. There are still many unsold apartments in small cities and prices are falling or rising only slightly. The March figures of the real estate portal SouFun, which tracks average apartment prices in 98 cities, saw on-month declines in 37 cities. Compared with March 2015, prices were lower in 55 cities.

The government intervened with a variety of measures last year to prop up the real estate market, including a reduction in the downpayment requirements. Downpayment requirements have been further lowered this year in most cities, as well as certain taxes related to apartment purchases have been reduced. Shanghai and Shenzhen, however, in an effort to dampen the rise in apartment prices, have tightened rules on apartment buyers and raised the downpayment requirements. The revival of the housing market partly reflects the increased use of borrowed money to meet the downpayment requirement. Downpayment loans are provided e.g. by some housing developers or through a peer-to-peer lender.

Living costs in China’s large cities have also risen rapidly. The latest survey of 133 cities of the Economist Intelligence Unit (EIU), found that all the eight cities in mainland China included (Beijing, Dalian, Guangzhou, Qingdao, Shanghai, Shenzhen, Suzhou and Tianjin) were among the world’s 60 most expensive cities. The EIU survey looks at prices of over 160 goods and services. Living costs are measured in relation to New York, so the dollar’s appreciation lifted US and Chinese cities in the rankings. The highest living costs were in Singapore, Hong Kong and Zürich. Shanghai was the priciest Chinese city, sharing 11th place with Tokyo. Shenzhen ranked 16th, making it slightly more expensive than Helsinki (17th).

Trends in Chinese apartment prices (98-city survey)
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Sources: SouFun, Macrobond

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