Economists are not sure what to make of China’s property market. It had been notoriously hard to predict in 2016, and we expect pretty much the same in 2017. So if you’re in two minds about wanting to sell an apartment in China, it is totally understandable.
Larry Hu, a top economist at Macquarie Securities Ltd. in Hong Kong said while there was a lot of talk about a housing bubble in China, the reality is that the rapid price gains in Chinese cities reflect the fundamentally high demand for housing, high population growth and low supply of housing stock.
He says that this is different from the credit-fuelled cycles of boom and bust seen in other overseas property markets around the world. Hu said that home prices were up by 60 percent in cities such as Shenzhen, and explained that this was only natural in a country like China.
Hu wrote in a recent report: "The difference between over investment versus mismatch is the single most important thing to keep in mind when thinking about China’s property sector, as these two views have vastly different implications for investment and government policy.”
He added that Shanghai was facing a big problem of high immigration without adequate supply of housing stock. Hu said, “If Shanghai sells only one parcel of land in a year, the price of the land must be extremely high – this is not a bubble; this is a shortage of supply.”
“The ultimate solution is to change the current land system. If the Bermuda Triangle is a tomb for airplanes, China’s housing market is a tomb for economic forecasters," Hu concluded.
Home prices in China have shot up because of the high demand for housing which has only shot up as the average Chinese becomes wealthier and has higher disposable incomes.
There are many forces at work here, such as better education, more efficient healthcare, basic social welfare and excellent work opportunities, which are bringing in migrants into the large cities from the rest of China. This has led to the boom in housing here.
The government has done its bit to cool down the markets by making is compulsory to have a down-payment ratio of at least 30 percent. Many cities in the country have introduced major tightening measures over 2016. This is expected to continue into 2017 and bring down the rapid growth in home prices just by a bit.
Moody’s says that home sales are likely to be flat or even negative in China for much of 2017, compared to the high base in 2016.Kaven Tsang, vice president at Moody’s said, “Specifically, sales volumes will decline by around 5 to 10 per cent in 2017.” He added that any sharp decline in prices was unlikely.
David Hong, who heads the research department at China Real Estate Information, agreed with Moody’s, saying, “China will still rely on the property sector to help maintain future economic growth.”
So, is this time to buy property in China, or should you sell? It’s hard to say for certain – nobody can – but most wealthy Chinese look to invest in the overseas property market in Europe, Australia and the Caribbean, rather than in China. This could be the trend looking forward into the future as well.