Low prices, sales ready to take off

 

Home prices are down from recent years. This encouraged many Chinese to buy real estate: apartments, houses or land. Chinese home sales are expected to reach record levels in 2016.

 

The short-term crisis in China

 

In 2015, China experienced a stock market crash that led to the loss of one-third of the share value of the Shanghai Stock Exchange in only one month.

Registered businesses, therefore have greatly reduced their borrowing capacity, slowing their growth and spending.

 

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A slight slowdown in the market before growth

 

In February, the real estate market in major Chinese cities like Beijing, Shanghai and Shenzhen, declined with fewer transactions for several weeks. There were only 11,640 homes sold in February. With the exception of social housing, 444 transactions were completed each day, representing 11% less than the previous month. In Shanghai, only 320,000 square meters of commercial housing was sold in February, a decrease of 54%. In Shenzhen, the number of transactions fell by over a thousand, a 72% drop compared to January.

Although growth in real estate investment slowed slightly, it is about to regain its momentum in 2017 with sales growing once more. It just takes some time to adjust in this transition period.

 

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What will happen in the coming years?

 

Zhang Ming, a researcher at the Institute of economics and world politics, said that the coming year would be a transition year from higher housing prices to lower prices in China.

He announced in effect that “the cycle for the real estate market of China usually last about two to three years, in which the rising period only lasts about a year.” Meanwhile, there are periods of transition and adaptation, this is what the country is experiencing at the moment.

Policy makers must try to maintain long-term stability in the housing market.

For this, they must firstly reduce the stock of available properties in order to counter the imbalance existing nowadays in terms of supply and the demand. This is more difficult in the third or fourth tier cities because even if these “rural” cities have set up destocking programs, their pace is much slower than first and second tier cities. This is partly due to the fact that they increased the lands and houses available instead of limiting them as they were advised. On a positive note, since the housing stock available for the first semester of 2016 decreased by 50 million square meters compared to the first semester of 2015.

Policymakers must then ensure stable prices for consumers and not to disrupt them again.

Finally, they have to limit the risks of financing the real estate market.

 

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