BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/21
In addition to rising apartment prices, the volume of apartment sales (measured in square metres of liveable floorspace) increased 39 % y-o-y in the first four months of this year. During the same period, the volume of new housing construction starts (in terms of floorspace) was up by nearly a fifth from a year ago. Although the volume of unsold new apartments has fallen since the start of the year, the stock of unsold apartments remained high relative to sales volumes and previous years. This situation poses a risk to a sustained recovery in the housing market.
A recovery in housing markets would normally be welcome news, but the sharp spike in prices seems to be fuelled largely by increased borrowing. Higher debt boosts the exposure of real estate developers and banks to any downturn in housing prices. Reuters calculates that 40 % of the loan portfolios of China’s five biggest banks at the end of 2015 were either tied to real estate or mortgages, up from 26 % seven year ago. It also appears that the indebtedness of households relative to the value of apartments has risen rapidly, a trend fuelled by reduction of the downpayment requirement. Apartment buyers even seem to be borrowing the required downpayment amount from the shadow banking market to qualify for standard bank loans.
Apartment price trends in Chinese cities (99-city sample)
Sources: SouFun, Macrobond and BOFIT.