By Shao Ting & Liu Weimin

Research Report Vol.18 No.4, 2016

I. Rapid Recovery of Real Estate Market with Significant Price Rise in Some Cities in the First Half of the Year

1. Property sales soared as a result of “destocking” policy With a series of favorable policies, the real estate market in first-tier and second-tier cities recovered in the first half of commercial housing experienced a year-on-year growth of 33.2 percent and 50.7 percent respectively. Specifically speaking, during the first half of 2016, 32 of 35 major Chinese cities saw rising sales, with the growth rate exceeding 100 percent in cities like Huizhou, Tianjin, Nanjing and Yangzhou. Only three cities witnessed decrease, among which Shenzhen fell by 23 percent and Beijing by 10 percent respectively. First-tier cities in China enjoyed a higher year-on-year growth rate of residential housing sales in the first quarter, while that of second-tier and third-tier cities began to greatly exceed the former since this April. Taken together, the sold area of commercial housing in first-tier cities during the first half of the year has a year-on-year growth rate of 7 percent, and the number reaches 47 percent and 44 percent in second-tier and third-tier cities respectively[]. But great differences exist in the sold area of housing among the same type of cities. Take first-tier cities as an example. Guangzhou and Shanghai rose by 27 percent and 14 percent year on year, respectively, while Shenzhen and Beijing fell by 23 percent and 10 percent (see Table 1). Faster sales shorten the period of destocking in cities. As for the pace of reducing short-term stock, by the end of May 2016, based on the average selling rate during the past five months, it will take first-tier, second-tier and third-tier cities 8.5 months, 7.5 months and 15.6 months respectively on average, 2.6 months 6.7 months and 19.0 months less than what was calculated at the beginning of the year. But considering the construction area and to-be-constructed area, there is still much long-term pressure of destocking. As of late May 2016, the area of to-be-sold commercial housing was 722 million square meters, and the construction area was 6.5 billion square meters. Based on the average selling rate during the past five months, it will still take 2.8 years to sell all of them. 2. Investment in real estate rebounds significantly, so does land price in popular cities Thanks to strong demand, investment in real estate and new construction area rise significantly year on year. Between January and May in 2016, investment inreal estate grew by 7.0 percent year on year, 6 percentage points higher than the rate in 2015 which is 1 percent. Regionally speaking, such investment in central region enjoys a year-on-year growth rate of 11.6 percent, far higher than the 6 percent in the east and 5.8 percent in the west. Similar to the real estate market, there are more prominent regional characteristics of land market. Sold area, revenue from selling land and price of land in second-tier cities exceed those in first-tier and third-tier cities. The sold area of land in 300 cities totaled 365.89 million square meters during the first half of 2016, rising by 3 percent year on year, including 113.49 million square meters of residential land, with a year-on-year growth of 0.4 percent. However, the sold area of land in first-tier cities shrank sharply, dropping by 29 percent year on year, while second-tier and third-tier cities enjoy a small increase, with a year-on-year growth of 5 percent and 2 percent respectively. Income from land sales in second-tier and third-tier cities rose by 78 percent and 5 percent respectively from a year earlier, while first-tier cities experience a year-on-year decrease of 14 percent (see Table 2). A key feature in the land market is the frequent appearance of sky-high land prices in first-tier and second-tier cities. In the first half of 2016, land price in first-tier, second-tier and third-tier cities experienced a year-on-year growth of as high as 25 percent, 76 percent and 6 percent respectively. Premium of land prices in most cities soared, with the number in first-tier, second-tier and third-tier cities reaching 61 percent, 49 percent and 17 percent, increased by 44 percentage points, 39 percentage points and 11 percentage points respectively (see Table 2). 3. Some popular cities see rocketing housing prices, and the real estate market is further divided In the meantime of accelerating destocking, some popular cities witness rocketing housing prices. In the first half of the year, housing prices in first-tier cities like Shenzhen and Shanghai soared, so did those in second-tier cities such as Nanjing, Hangzhou, and Zhuhai. According to China Index Academy, in May 2016, the average price of newly-built houses in 100 cities in China was 11,662 yuan per square meter, accumulative growth of 6.21 percent from January to May 2016. Specifically, the accumulative growth from January to May 2016 was 11.05 percent, 3.97 percent and 3.6 percent respectively in first-tier, second-tier and third-tier cities. Different trends show up in housing prices in different cities. Housing prices skyrocketed in first-tier cities such as Shenzhen and Shanghai and second-tier cities like Nanjing, Suzhou, Zhuhai, Xiamen, and Hefei, while some third-tier cities see declining housing prices. From the urban landscape, the rising housing prices in first-tier cities will spread the trend in others. From Table 1, we can see the housing price of Shenzhen increased by 82 percent year on year during the first half of 2016, much higher than that in Shanghai (17 percent), in Beijing (15 percent) and in Guangzhou (5 percent). Influenced by the trend in Shenzhen, Dongguan, a third-tier city, experienced rapid increase of housing price, with a year-on-year growth of 32 percent in the first half of the year, however, some third-tier cities, like Shaoguan and Xuzhou, witnessed declining housing prices, like the decrease of 19 percent in Shaoguan on a year-on-year basis.

II. Market Demand in First-Tier and Second-Tier Cities Growing Slowly and Much Pressure of Destocking in Third-Tier and Fourth-Tier Cities in the Second Half of the Year

Under favorable policies, demand for housing in first-tier and second-tier cities has been overdrawn in the first half of the year, and the market will remain stable in the second half, showing “strong demand first and weak demand later”. Since some first-tier cities like Shanghai and Shenzhen rolled out regulatory policies at the end of March 2016, second-tier cities such as Nanjing and Hefei also tightened policies concerning buyers’ eligibility, tax, and land supply. As a result of this, sales of commercial housing in the first five months of 2016 had a much slower growth rate, thus preventing the rapid expansion of the real estate market. To be specific, compared with the period between this January and April, the year-on-year growth rate of sold area and sales of commercial housing reduced by 3.3 percentage points and 5.2 percentage points respectively; and the year-on-year growth rate of new construction area and investment decreased by 3.1 percentage points and 0.2 percentage points respectively. ...

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