Deja Vu As China Enters 2014 With Higher Home Prices

Jan 19 2014, 3:06am CST | by

Deja Vu As China Enters 2014 With Higher Home Prices

The Chinese will face another year of rising home prices.

According to the National Bureau of Statistics, 65 out of 70 cities surveyed saw home prices ending the year higher than they were a month prior.  January is unlikely to be an exception, as China  housing remains on performance enhancing drugs.

November data showed prices relatively stable, but up a tad in Shanghai, Guangzhou, Beijing and Shenzhen, China’s busiest cities. Prices are up less than half a percent, however, in the month long period.

High home prices are mostly the cause of higher incomes and lackluster financial options for wealthy Chinese, who prefer to use housing as a store of wealth. But that kind of investor demand has driven up prices in cities that actually lack housing, especially the affordable kind, putting pressure on China’s middle and lower income earners which constitute the bulk of the nation’s population.

Home prices in China have climbed to a level that some say could trigger a financial crisis, though that call has been made for the past five years.  In the meantime, municipal level banks, which also fund developers of real estate projects, have been given warnings by the Central Bank about its non-performing loans (NPLs).  Although the NPLs for municipal banks is not entirely transparent, nor is it clear that the bulk of the NPLs is due to bad real estate deals, the overall NPL number within China’s banking system is within international norms, according to the World Bank.

Still, home prices in Beijing and Shanghai have more than doubled in the past 10 years. Policymakers have tried to curb speculation and added numerous road blocks to housing, including punitive taxation and higher down payment requirements. Nothing has tamed the market.

A big price correction in the Chinese real estate market is unlikely, as this is still a country controlled from Beijing. And Beijing doesn’t want a real estate bubble to burst.

Xin Zhiming, Big Picture columnist at China Daily, wrote recently that, “As people’s hopes to buy an affordable home are dampened by rising prices, they may become less confident in policymakers, which, in the longer term, will prove a problem even bigger than real estate price corrections.”

According to the National Bureau of Statistics report, released on Saturday, all 70 cities except for Wenzhou reported gains in new home prices. First-tier cities continued to record month-over-month price hikes, new home prices in Beijing and Shanghai up over 20% from December 2012 levels.

The Hottest Real Estate Markets On Earth

Source: Forbes Business


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