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July 6, 2015

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Housing market diverges in large, smaller cities

WITH supportive policies targeting the property sector taking effect, the housing market in China’s metropolitans has witnessed a revival while recovery in smaller cities remains mild due to the size of inventories and other headwinds.

Home sales volume in China’s tier-1 cities, including Shanghai and Beijing, surged 42.9 percent in the first half of this year from a year earlier, with the uptick in tier-2 cities at 16.9 percent. Tier-3 cities fell by 2.9 percent, the latest data from property agent Centaline revealed.

The trend was buttressed by other private and official industry reports. Figures from property agent Home Link showed that existing home sales units in Beijing spiked 92 percent in the first half year on year with average sales price climbing 3.8 percent to 34,606 yuan (US$5,576) per square meter.

Big city property markets are showing the opposite trend of tier-3 and tier-4 cities in recent months, as recovery of the housing market in small cities is weighed down by high inventories, said Zhang Dawei, chief analyst at Centaline.

The warming market in large cities is bolstered by supportive monetary and tax policies, with many families encouraged to change to bigger apartments, said Hu Jinghui, vice president of another major realty firm

The fortunes of the property market are deemed to be crucial to the world’s second-largest economy. It took a downturn in 2014 due to weak demand and the cooling continued into the first months of 2015, fueling concerns that persistent weakness in the faltering sector and exports may derail the already slowing economy.

In March, China reduced down payment levels for second-home buyers to 40 percent from the previous 60-70 percent, and exempted business tax for sales of homes purchased over two years ago.

Data from showed that sales volumes in China’s eight major cities, including Shanghai, Beijing, Guangzhou and Shenzhen, have all bottomed out in the first half compared with the trough in 2014.

However, no quick rebounds for the housing markets in small cities and towns were seen, as many young people are rushing to big cities seeking better employment, education and medical services, analysts believed.

Big pressure remains in tier-3 and tier-4 cities, as recovery is weighed down by the oversupply of housing built in the past few years, said Zhang.

On the back of monetary easing and preferential tax policies, China’s real estate recovery on the whole will continue into the second half of this year and the transaction volumes in tier-1 and tier-2 cities are forecast to surpass those in the first half, said Hu.

China’s central bank has moved to combat the economic slowdown, cutting benchmark interest rates four times since November and lowering banks’ reserve requirement ratio twice since February.


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