March saw what could be the beginning of a rebound in the Chinese housing market. The average housing price across 70 cities may have fallen by 1.3% in March, but this still represented a gain of 0.2% on the February figure. It put an end to seven months of falling prices and was accompanied by a month-on-month increase in transaction volumes of more than 50%. Analysts saw it as evidence of Beijing’s stimulus measures having an effect.
“The increase in transaction volumes are a direct result of measures that the government has taken, which have substantially improved affordability for mass market housing,” said Michael Klibaner, national director and head of research for Jones Lang LaSalle in Shanghai. “Specifically, lower downpayments, lower interest rates, increased access to public housing funds, lower taxes and transaction costs.”
These measures, combined with price cuts, have released pent-up demand from potential buyers sidelined by higher housing prices in 2008, said Carol Wu an analyst with DBS Vickers in Hong Kong.
The buyers are different from those who led the market before. Previously, sales were driven by investors purchasing second or third homes as investments. Now, purchasers tend to be real end-users: people buying their first homes or those upgrading to newer or larger units. This can be seen by the locations of housing projects that are selling, according to David Ng, head of regional property research for Royal Bank of Scotland. “Projects doing well are those that offer existing utilities and established facilities rather than a future concept like opening the subway five years from now,” he said. “Those things attract speculators.”
But don’t expect to see a host of mass-market housing projects going up in response to better sales. Developers are being cautious and working on getting rid of their current inventories before beginning new projects. Where there is new construction, Klibaner expects it to focus on the subsidized housing market.
“Nine percent of the stimulus plan was for this sector, so it’s a significant part of housing over the next two years,” he said. “But there hasn’t been that much transparency on how it’s going to be implemented.”
What’s also unknown is how long the current upturn in the housing market will last. “It’s hard to see such strong growth going into April, May and June,” said Wu. “It should slow down, but because the volume last year was quite weak, we’ll continue to see a volume increase over last year.”