China home prices seen up 10% in 2016 on strong demand: poll

[BEIJING] China's home prices are expected to rise 10 per cent this year due to robust demand, but will nearly stall in 2017 as more cities try to curb sharp price rises, a Reuters poll found.

A booming housing market and government infrastructure spree helped the world's second-largest economy grow faster than expected in the second quarter, benefiting the construction industry and companies that sell building materials from steel to cement.

China's average nationwide home prices are expected to rise 10 per cent in 2016 from a year ago, according to the median of forecasts from 11 analysts. That is significantly higher than the 6.3 per cent gain predicted in the last poll conducted in June.

Analysts cited favourable macroeconomic policies and hot demand in more developed cities as some of the reasons behind the strong price rises.

"In general, current credit policy is still relatively relaxed, and this is the reason behind the price rises in first- and second-tier cities," Home Link Research analyst Xu Xiaole said.

Other analysts believed that although price rises in first and second-tier cities have already been "oppressed" to some extent by cooling measures, capital will keep flowing into the property market given Chinese have few other good investment options.

That said, analysts surveyed do expect more cities to impose curbs on home purchases this year, such as higher mortgage downpayments, as continued price rises raise fears of overheating and property bubbles.

Though home price rises in China's biggest cities showed signs of easing in July from June, they have posted eye-popping gains on a year-on-year basis, with southern boomtown Shenzhen rising nearly 41 per cent.

Prices in Beijing and Shanghai were up 20.7 per cent and 27.3 per cent year-on-year, respectively.

Poll respondents believed the enthusiasm for home purchases in bigger cities will persist, and falling inventories likely will drive up prices.

Secondary markets with continuous population inflow or located near the country's largest cities, such as Wuhan, Hangzhou and Nanjing, also will see strong price growth for the remainder of this year.

But prices in third and fourth-tier cities are likely to underperform due to high inventories and sluggish demand. Nearly half of the respondents believed it would take over two to five years for inventories to clear with situations in less developed cities a particular worry.

Housing inventories has been falling slowly despite strong sales this year.

Almost all of the 11 respondents thought property investment would remain low through the end of this year, with a median forecast of 4 per cent, after growing just one per cent last year.

Property investment in January-July rose 5.3 per cent from a year earlier, official data showed, slowing from an increase of 6.1 per cent in January-June.

Poll respondents see Chinese home prices as expensive. On a scale of one to 10, where one is extremely cheap and 10 is extremely over-valued, the median reply was eight, slightly higher than seven in the last poll.

REUTERS