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Overseas Property News Reports On House Prices Rises In China

News Posted On: 10 January 2013

China’s house prices rose in 100 major cities in December, showing a 0.03% increase on a year earlier. While a small increase, it means an 8-month slide in prices has halted, and it coincides with an improved performance from the economy as a whole, especially the manufacturing sector.

After two uncomfortable months in negative territory, China’s Purchasing Managers’ Index has finally risen above the 50 mark to 50.2. However, a key factor in depressing China’s economic performance has been the poor export demand of recent years; China is committed to a policy focussed on growth to ‘withstand weak external demand,’ according to economists from Bank of America Merril Lynch.

According to CREIS, a consultancy affiliated to the largest online real estate company in China, Soufun Holdings, ‘there is a low possibility of a sharp rise in home prices nationally in 2013, since the destocking process has not finished.’

The effect is strongest in major cities, and while the increase from prices the previous year is the first for 8 months, prices have increased month on month for seven months. Average home prices rose 0.2% in December from November in the 100 largest cities. In the 10 largest cities, including Beijing and Shanghai, prices rose by 0.5% from November and 1.1% from a year previously, far outstripping the national average.

China’s property markets have recently seen a rise in land prices, which is traditionally a precursor to rising house prices; some of the price rises may therefore represent competition between buyers anxious to pre-empt greater rises when the knock-on effect from land prices comes into effect. China’s expanding middle class still feel themselves priced out of the housing market to a large extent, and government controls have remedied this somewhat but the three-year fight against housing speculation has not been entirely successful.

‘The government has been promising to improve housing affordability for some time,’ says Wei Yao, an economist with Sociéte Générale, ‘and it seems they are failing again.’ But there’s a balance to be struck: on one hand, housing must be made accessible and on the other the construction sector must be encouraged.

Construction accounts for 15% of China’s GDP and is a major engine of economic growth. As the country’s government announced in October last year that ‘the curbing of speculative property demand must be a long-term policy,’ China’s heavy industry sector was suffering a notable decline including job losses and plant closures.

China has seen a resurgence of its manufacturing sector, though, and the liklihood of house prices rising to match this has reignited concerns across China about a widening wealth gap and inaccessibility of housing.

The Chinese economy has begun to suffer familiar first-world problems after a period of immensely rapid growth that surprised business observers and had the Economist recommending that its readers learn Mandarin. But while the country has lost its ‘tiger’ status it has not lost its massive size or its importance as an economic centre. As Chinese house prices rise, many middle class Chinese seek to either invest or move elsewhere, including to Japan where house prices are attractively low for some Chinese buyers. China’s housing market remains at the mercy not only of its economy but of regulatory efforts aimed at constraining speculation.

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