China’s new home prices up amid lending surge in March

New home prices in China grew slightly faster in March after growth slowed the previous month, putting a floor under the cooling market, as Beijing rolled out stimulus to boost the economy.

The housing sector’s solid growth could cushion the impact of a vigorous multi-year government crackdown on debt and escalating trade tensions with the United States, although some analysts say bubble risks are rising as prices continue to climb.

Average new home prices in China’s 70 major cities rose 0.6 per cent in March, quickening from a 0.5 per cent gain in February, according to Reuters calculation of data released by the National Bureau of Statistics (NBS) on Tuesday.

On the whole, it logged the 47th straight month of price increases. Most of the 70 cities surveyed by the NBS reported monthly price increases for new homes, and the number climbed sharply to 65 from 57 in February.

On an annual basis, home prices rose 10.6 per cent in March, the highest since April 2017, and also accelerating from a 10.4 per cent gain in February.

Consumer and business confidence have slipped in recent quarters in the face of slowing economic activity and the Sino-US trade dispute, as growth in the world’s second-biggest economy slumped to near three-decade lows last year.

As banks loosen lending standards and lower mortgage rates, buyers are returning to the market in anticipation of bigger price gains.

“Under the loosening credit policy, buyers are now rushing into the market for fear of missing out as some cities have experienced large price declines in the previous months,” said Zhang Dawei, an analyst with Hong Kong-based Centaline, a property consultancy.

Home prices in China are expected to rise more this year than predicted just a few months ago, a recent Reuters poll showed, as the government urges banks to raise lending and lower interest rates to support the economy.

Policymakers have been walking a tight rope between loosening some existing curbs and flushing out speculators in a market that directly influences 40 other business sectors in China and is key to tempering the economic slowdown.

But critics say Beijing’s pledge to defuse property speculation might have been compromised as banks issued far more loans in March than expected, heeding the government’s call to support struggling smaller companies and shore up the economy.

Medium- to long-term new household loans, mostly mortgages, totalled 460.5 billion yuan ($68.6 billion) in March, according to Reuters calculations based on central bank data, up sharply from 222.6 billion yuan the previous month.

Tier-3 cities mainly led the firming streak in March. Home prices in those cities rose 0.7 per cent from the preceding month, accelerating from 0.4 per cent in February, the statistics bureau said in a statement accompanying the data.

The Chinese city of Dandong, which lies on the border with North Korea, was the top price performer in the month, with prices increasing 1.9 per cent on a monthly basis.

Price growth in China’s four top-tier cities - Beijing, Shanghai, Shenzhen and Guangzhou - rose 0.2 per cent from a month earlier, slowing from a 0.3 per cent gain in February. While prices in tier-2 cities, which include most of the larger provincial capitals, increased 0.6 per cent in March on a monthly basis, compared with a 0.7 per cent gain previously.

More recently, China’s state planner announced a scheme this month to ease residency curbs in small cities, amid a renewed push to accelerate urbanisation, which many analysts say would enable more out-of-towners to buy properties in the city, boosting property demand.

Some smaller cities have also quietly loosened curbs to prop up sentiment and demand, and Beijing appears to be showing a bigger tolerance as it emphasises on a “city-based” approach that gives local governments more autonomy in policymaking.

“Every time monetary policy has been eased since 2008, it brought house prices back up. Now with mortgage rates trending down, pent-up demand has been released and led to relatively significant gains in prices last month,” said Nie Wen, an economist at Hwabao Trust in Shanghai.

Nie expects home prices to continue at the current trend rather than rise sharply compared with previous cycles, adding the government is still working to contain leverage ratios and a national programme to redevelop the country’s shanty towns is expected to be pushed back this year.

Data on property investment and sales will be issued on Wednesday

China’s stimulus measures will shore up economic growth this year and next but may undermine the country’s drive to control debt and worsen structural distortions over the medium term, the OECD said in a report on Tuesday.

Reuters