Big Chinese cities could see renewed home price spikes as housing glut eases

An acceleration in price rises would reverse a cooling trend seen in national data in recent months

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Private housing blocks are seen in Hong Kong, China December 15, 2015. REUTERS/Tyrone Siu/File Photo

BEIJING (Reuters) - China's biggest cities could see a further spike in home prices after inventories of unsold homes fell sharply in July, state news agency Xinhua reported on Tuesday, citing an industry report. An acceleration in price rises would reverse a cooling trend seen in national data in recent months, and could force local governments to impose more cooling measures on the property market, despite the risk of quashing one of the few bright spots in the economy. The area of unsold new homes in first-tier cities dropped four percent in July from the previous month, while that in second-and third-tier cities fell 0.5 percent and 1.2 percent respectively, property research agency E-house China Institute said in the report.

Figures seemed to be more revealing on a year-on-year basis, as inventories for first- and second-tier cities slipped 18 and 4.5 percent, respectively. Some China watchers have said it could take two to three years to bring the huge inventory of unsold homes in China down to more healthy levels, but the report suggested it would only take 10 months to move the remaining homes in the country's 35 major cities if sales continued at the same speed as in July.

"The accelerated destocking was behind recent home price increases and will continue to drive prices up in the third quarter of the year," Yan Yuejin, an analyst with E-house China was quoted as saying.

Unsold new homes in 35 major Chinese cities totalled 244.8 million square metres at the end of July, down 1 percent from June and 5.6 percent from a year earlier. However, official data have suggested that policymakers' efforts to "destock" or reduce the overhang are kicking in more slowly. China's housing inventory only declined by five percent in January-July and remained high at 432 million sqm, according to a recent BofA Merrill Lynch Global Research report.

In July, home price rises in China's biggest cities showed further signs of easing on a monthly basis, adding to concerns that one of the economy's key growth drivers is losing steam but offering some relief for policymakers worried about property bubbles. But prices in major cities are still sharply higher from the same period a year earlier, with those in the southern boomtown of Shenzhen surging nearly 47 percent and Shanghai up nearly 28 percent. And a near one-year-long recovery in the country's housing market has been incredibly uneven, as smaller cities bear the brunt of overcapacity and more developed cities worry about prices overheating. Third-tier cities only saw their inventories fall slightly by 0.1 percent year-on-year, the E-house report said.

(Reporting by Yawen Chen and Elias Glenn; editing by Kim Coghill)