Divergence in house prices piling pressure on economy
Print Edition
HOUSE prices in China rose at their fastest pace in almost two years last month thanks to huge demand in major cities, but risks of overheating in some places combined with weak growth in smaller cities threatens to put more stress on an already slowing economy.
Average prices for new homes in 70 cities monitored by the National Statistics Bureau climbed 3.6 percent in February from a year ago, it said yesterday, quickening from January’s 2.5 percent rise. That was the fastest year-on-year increase since June 2014.
There were annual gains in 32 of the 70 cities, up from 25 in January.
That should be welcome news for policy-makers who have rolled out a raft of stimulus measures to support an economy growing at its slowest pace in a quarter of a century.
But the divergence in prices — surging values in bigger cities and depressed markets in smaller cities plagued by a supply glut — makes the government’s job harder as it looks to reanimate growth without inflating asset bubbles.
“The government’s all-out encouragement of housing sales seems to be working, but at the cost of surging prices in big cities,” said Rosealea Yao, an economist with Gavekal Dragonomics in Beijing.
“These surges in big cities are not sustainable and would increase uncertainties and instability in the overall housing market.”
The bureau’s figures showed that first-tier cities, including Shenzhen, Shanghai and Beijing, remained the top performers, with prices surging 56.9 percent, 20.6 percent and 12.9 percent respectively.
“Prices in first-tier cities are very expensive now, it’s hard for new families to afford a home,” said Tan Huajie, vice president of Vanke, China’s biggest property firm.
Speculators and ordinary investors, shaken by the summer crash in domestic stock markets, are increasingly ploughing their money into the housing market — most of it in major centers.
A slowing economy has also meant that most jobs are in the biggest cities, drawing more people into these places and feeding the insatiable demand for homes.
A breakdown of bureau figures showed that government measures and increased lending has failed to arrest persistent softness in property markets in smaller cities where the glut of unsold houses has weighed on prices.
Most third-tier cities still saw year-on-year price drops in February, though declines eased from January.
With the broader economy decelerating amid weak exports, overcapacity in factories, slowing investment and high debt levels, the property market may help stabilize growth.
But signs of overheating even as prices remain depressed in smaller cities complicate matters for policy-makers.
While fears of a hard landing for China’s economy have abated in recent weeks, some commentators say the government cannot afford a housing crash in major cities given that real estate and related investment activities account for 15 percent of gross domestic product.
Underscoring the importance of the sector to the economy, yesterday’s data helped fuel strong gains in steel and iron ore futures.
In an effort to deter speculation, some officials have suggested the release of more land for sale in areas with the hottest price rises, while others have vowed to crack down on illegal lending to home-buyers.
Chen Zhenggao, China’s housing minister, earlier acknowledged that price divergence posed a challenge for housing policy controls.
“Now one important task for us is to stabilize home prices in first-tier cities and some second-tier cities,” Chen said.
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