China’s soaring housing prices again causing concern

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/40

Just over a year ago, average apartment prices in China began to climb again. The rate of climb has been increasing ever since. The real estate portal SouFun, which tracks housing prices in nearly 100 Chinese cities, found that the average price of one square meter of liveable floorspace surpassed 12,600 yuan (€1,700) in September, a 17 % increase from September 2015. Price rises were largest in China’s main metropolises. September prices were up 19 % y-o-y in Beijing, 27 % in Shanghai and 42 % in Shenzhen. SouFun’s sampling found average apartment prices fell in only 17 cities, suggesting that the recent price rise is exceptionally broad-based.

Following a brief pickup in spring, the rate of housing construction has subsided. In August 2016, new housing starts were up less than 4 % y-o-y. In spring 2015, new starts were up 20–25 % y-o-y. The pace of building growth could remain moderate in the future as purchases of building rights on lots has fallen sharply since the building boom peaked a couple years ago. In July-August, the volume of lots purchased by companies were down by about 20 % y-o-y.

From the economic policy perspective, the housing market situation is problematic. Some of loans intended to stimulate economic output have gone instead to housing investment, further fuelling the rise in housing prices. A housing bubble, in turn, makes it more difficult to deal with the debt problem. Local governments have tried to deal with the price rise by tightening city-specific rules on apartment purchases and loan conditions, as well as encouraging real estate developers to move ahead with new construction projects. At the moment, these measures have had little effect and the situation continues to degrade.

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