Growth in China's home prices to cool in 2021

Beijing

CHINA'S home prices are expected to rise at a slower pace this year while sales will likely remain steady, as Beijing shifts its focus to tackling rising debt risks in the sector as the economy recovers, a Reuters poll showed.

The residential property market recovered quickly in 2020 benefiting from lower mortgage interest rates and a marginal relaxation of some official curbs on buyers, offering much-needed support for an economy nearly fully recovered to pre-coronavirus levels. But the rebound has raised concerns about financial risk and policymakers have since then tightened screws on the funnelling of funds into the sector.

Average residential property price growth is estimated to cool to 3.3 per cent in 2021, according to 13 analysts and economists surveyed from Jan 25-29.

Home prices climbed around 4.9 per cent in 2020, a Reuters calculation of official data showed.

The price rises this year will continue to be driven by bigger cities as the credit liquidity released during the Covid-19 epidemic cannot be recalled in the short term, said Nie Wen, economist at Hwabao Trust.

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Sluggish demand in smaller cities and stringent lending regulations for developers and buyers, however, will put a lid on any spurt in demand this year, analysts say.

Property transactions are expected to be flat from last year, versus a 2.6 per cent gain in 2020.

Zhao Ke, analyst at China Merchants Securities, said pent-up buying in the second half of 2020 could mean that demand won't be as strong this year.

Yuan Hao, chief real estate analyst with SWS Research, also expected the central bank's tight controls on banks' property loan issuance to curb home transactions this year.

Regulators outlined borrowing caps known as "the three red lines" last August, while the central bank in December introduced caps on property loans granted by banks.

Major Chinese cities including Beijing, Shanghai and Shenzhen also recently ramped up transaction restrictions and launched probes into illegal flows of funds into the real estate sector.

Housing investments are estimated to rise 6.4 per cent this year, slightly softer than the pace of 7 per cent in 2020.

"The volume of new construction starts is expected to stay elevated this year, as land sales in 2020 remained high," said Nelson Wong, head of research for Greater China at commercial property services provider JLL.

Housing project construction investment will also be driven by developers who are accelerating project launches to raise cash amid tight financing conditions, he said. However, land purchase, the other component of real estate investment, is likely to slow down due to the tight financing situation.

The survey also found analysts think the Covid-19 epidemic will have a limited impact on China's property sector, and many believe the market will remain stable or further cool this year.

Most respondents say top-tier cities may extend tightening curbs to avoid market froth due to a low level of residential housing supply, while lower-tier cities facing a slump in demand may roll out more support.

Asked to rate the affordability of Chinese housing on a scale, with 1 being the cheapest and 10 the most expensive, analysts' median answer was 7, in line with the last poll. REUTERS