Effect of China’s real estate boom spreads to 3rd- and 4th-tier cities

Real estate in the major cities of most countries tend to be priced high and attract both local and foreign investment. However, when the rate at which properties even in less populated or less popular cities for that matter are being sold gain traction, does that signify a property bubble or simply a positive sign of the country’s growth? How far and for how long more can these property-buying sprees go on and what are the short-and long-term effects on the country’s economy?

chinaMoody’s has already downgraded China’s credit rating for the first time since 1989. Even though the Chinese government has taken steps over the past year to contain the exponential explosion of the country’s real estate sector, their strategies were by no means one-size-fits-all but was instead targeted at specific property hubs such as Beijing, Shanghai and Shenzhen. Smaller cities are left in the hands of local governances and because of the restrictions in larger cities, buyers and investors are now setting their sights on these far-flung places. In Xisuangbanna, a region near Yunan, for example, new apartment units are being snapped up and on the cheap. The lack of buying limits, easily attainable mortgages and promises of a future property boom have lured buyers to these smaller townships. As effect of the impending property bubble risk ripples, demand for homes in small cities could mean the eventual impact should the bubble burst, will be one larger than anyone can predict.

Economists are already picking up warning signs of a bubble as sales in the 3rd- and 4th-tier cities show that buyers are buying without clear understanding of asset yields. There is a sense of real estate hoarding as sales are driven purely by hopes or a future price rally. But should the market fall in the future, will China then suffer the same fate as the US?

Beijing and Australian governments struggling to rein in runaway home prices

Runaway property prices in some major cities have had their respective governments scrambling to rein in the market.

beijing-tongzhouIn Beijing for example, regulations pertaining to online real estate portals have been set, resulting in 15 such sites having had to remove misleading information from their website. False advertising is rampant and could have had a part to play in the skyrocketing of home prices in Beijing. Many online sites promise “limitless potential for price gains” and even fengshui advice, boosting an atmosphere that is ripe for speculation. The government fears that uncontrolled price increases will result in household debt and ballooning bank credit risks and generally creating a sense of uncertainty and discontent on the grassroots level. This latest move is on top of other rules already implemented in attempt to cool the market in the Chinese capital. Minimum down payment for a second property has already been increased from 50 to 60 per cent and purchase of a third property is disallowed.

SYdneypropertyIn Australia, a surging housing market also has the Australian government trying to relieve the pressure on a possible property bubble which is in danger of bursting, with dire consequences for the economy, possibly even the first recession in 26 years. They have issued warnings to banks for the latter to curb home lendings, in particular to investors. Almost 50 per cent of the home loans taken out from Australian banks are from investors.

Interest rates have been at a record low, accounting for the heightened number of loans, which in turn has caused property prices to rise exponentially, with that in Sydney rising 104 per cent and in Melbourne, 88 per cent. Household debt has already risen to 189 per cent, one of the highest in the world and many Australian households now find themselves ladened with hefty home mortgages, which could be problematic should unemployment or a recession take place.

Why property cooling measures are here to stay

ABSD, SSD, TDSR, QC – These abbreviations related to property cooling measures implemented over the course of 5 years have taken root in the local real estate and construction industry and despite a much quieter market, may not go away anytime soon. And with good reason.

Aeon MelbourneThe demand for properties in other major Asia-pacific countries and cities such as Hong Kong, China, Australia and Japan have not seem to wane, reflected by soaring home prices in Hong Kong, Sydney, Melbourne and various top-tier cities in China. And this is despite their governments placing more restrictive regulations in place in efforts to curb investment outflow and property speculation. But perhaps it could be the case of too-little-too-late. And it also goes to show that investors are still looking for markets to hedge their funds and the pool of willing China investors looking to take capital out of their country agains a depreciating yuan.

CasaAerataIn Singapore, despite a gradually decline in home prices, the market has remained resilient and a untimely lifting of property curbs may result in a quick and unrecoverable increase in property speculation. In fact, despite the series of property curbs instrumented since 2013, the property cycle seems to already be reaching the bottom, which could only mean a turnaround possibly within the year. Last year, resale volume rose 28 per cent and total sales increased by 16 per cent from 2015, indicative of a recovering, or at least stabilising, market.

Prices of new homes in China rise once more

Property prices in many major China cities have been on a constant climb since 2011, and new home prices have once again risen last year, at its fastest rate no less.

HuBinDaoWarning signs of a property bubble has been looming for sometime now, and as there has been no signs of relief, the fear is that the market might reach bursting point quite soon. Real estate market speculation threatens to hurt rather than help the economy even as China’s leaders fret over the country’s economic target for the year.

In over 70 cities across China, the average new home prices have risen 12.4 per cent. In top-tier cities such as Shenzhen and Shanghai, property prices have risen as much as 60 per cent in the span of a year. Some cities such as Beijing may have more leeway to cope with further market hikes, but in many cities, property markets are already languishing.

ShuiOnPlazaOut of 15 markets, 12 have shown signs of overheating as prices have began to fall. Growth is beginning to slow down as household loans and house sales have both been on the decline. The China government has implemented some cooling measures over the past year in attempts to slow down the growth of the bubble, the latest being limits placed on the number of new home loans banks are able to issue.

 

China’s property explosion slows only slightly

There has been fear of a bubble growing in China’s property market but as property prices fell  in some of China’s top and second-tier cities this month, the fears may be slightly allayed as it seems to indicate that the curbs which authorities have put in place are starting to work.

Property analysts have however reported a change in focus for some mainland buyers to Hong Kong as skyrocketing property prices and cooling measures put some off.

HongKong The AltitudeThe property market in China is one of the country’s main source of revenue growth, and while the authorities may want to prevent a bubble from bursting, they are also put to task to keep the economy alive. China’s economic growth of 6.7 per cent in Q3 was largely dependent on its real estate industry. Recent curbs include larger down payments and restrictions on multiple property ownerships. But the low interest rates offered by China banks have kept the buyers coming. Though the rates have remained unchanged since October 2015, it has been cut 6 times prior.

While new home prices in Beijing fell 3.7 per cent and 2.5 per cent in Shanghai, some may consider this a market cooling. But the average new home prices across 70 cities have shown a record surge last month, the highest in 7 years, with a 1.8 per cent rise from August.

 

Chinese buyers inject new money into Aussie property market

In Australia’s major cities, the Chinese have purchase properties quickly and surely over the years. Property prices in Sydney and Melbourne in particular have been on full steam for a good 5 years now, having risen 55 per cent since while mortgage rates have fallen. The buying continues despite a fall in the yuan following last year’s global financial market bedlam.

SydneyKentSt ApartmentPhoto: Apartment on Kent St., Sydney.

As property prices in top-tier Chinese cities such as Beijing and Shanghai continues to inch up, more Chinese nationals are bringing their monies out of the country and looking for investment opportunities elsewhere on the globe. A 2-room apartment in Beijing sold for S$1.7million could more than comfortably fund a S$962,660, 688 sq m house just outside of Melbourne’s central business district. Most of the purchases made by Chinese Australian permanent residents are funded by relatives in China.

The Australian government has since clamped down on foreign investment as locals fear being priced out of the market. But Australian property analysts say that publicity around the issue of foreign-buying have made it seem bigger than is actually is. In fact, all the activity in the property market have helped to keep the property and construction industries busy and booming.

 

China real estate’s real or false value?

The economic landscape in China has been nothing short of exciting lately, with quick-changing peaks and troughs. Following the recent stock market crash, investors are snapping up rapidly snapping up real estate, especially in Shenzhen and Shanghai. Investors are cashing out on their failing stocks and buying up real estate instead.

Shui On Land Wu HanPhoto credit: Shui On Land

The less-costly but equally major city of Shenzhen is leading the way for potentially similar activity in Shanghai, with property prices more than doubling in the last year. Properties are already considered expensive in the commercial and more cosmopolitan Shanghai, but even there, values are expected to rise 20 per cent. A new residential project in North-central Shanghai has recently launched to median prices of $1,600 psf, with a 1,800 sq ft unit  going for about $3.3 million. From the first-day sell-out response, saying that the buyers are biting is an understatement. Hong Kong developer Shui On Land is behind this project and will be launching the next phase in May this year, possibly at higher prices.

Taipingqiao1These actions however may be risky. A property bubble is growing and could burst if policies and economies are not managed efficiently. Some smaller counties are already struggling with increasing unsold inventory, with some townships reporting ‘ghost towns’ or developments which are severely undersold.

 

China property – Foreign buying regulations ease up

The Chinese yuan has fallen drastically last month, and China’s economy is also showing some signs of struggle. In a bid to boost the overall economy and stabilise the property market, recent regulation changes have made it easier for foreign property buyers to foray into the market.

HongKong The Altitude
Since last November, interest rates have been slashed 5 times, and prices and market sentiment have made a turn for the better in July. The market seems to have finally stabilised, though supply is still on the rise, leaving many townships and cities with massive blocks of empty units. Despite all that the government has done to help keep the market afloat, will investors be more wary about the country’s economical uncertainty or will they see this as a chance to enter the market?

In more popular cities such as Shanghai and Beijing, developers and property owners are still enjoying a relatively steady flow of sales and rental yields. Some Chinese buyers have also forayed into the Hong Kong market, where demand is high considering the population density and continued influx of temporary residents. Property launches in Hong Kong are well attended and over the past year the Chinese government has spent S$98.5 million purchasing properties in Hong Kong for staff housing.