China’s property rebound gathered pace in March as new home prices in the southern city of Guangzhou jumped the most in more than two years, underscoring concerns that a bubble may be building.
Guangzhou prices rose 11.1 percent from a year earlier while those in Beijing climbed 8.6 percent and Shanghai posted a 6.4 percent increase, the National Bureau of Statistics said in a statement today, all showing the biggest gains since January 2011 when the government changed its methodology for the data. Prices rose in 68 of 70 cities tracked by the government, the most since September 2011.
“Today’s data shows demand is still strong, especially in major cities; the government’s measures in the past didn’t work,” Shen Jian-guang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., said in a phone interview today. “Home prices will continue to rise because local governments are refraining from fully implementing the measures.”
Thirty-five provincial-level cities have issued details of property curbs by an April 1 deadline, “far more benign than the market’s expectations,” according to a BNP Paribas SA report. Former Premier Wen Jiabao, in his final endeavor to make housing affordable, ordered higher down payments and interest rates for second-home loans in cities with “excessively fast” price gains and urged stricter enforcement of taxes on sales.
Most cities, including Hangzhou and Nanjing in the east, and the southern business hub of Shenzhen, pegged home-price gains at a rate less than the growth in per-capita disposable incomes. That will allow home prices to increase 7.5 percent to 13 percent this year, Centaline Group, parent of China’s biggest real estate agency, said in a report this month.
March home prices declined in Ningbo and Wenzhou, both in the eastern Zhejiang province, from a year earlier. Wenzhou had the biggest drop, tumbling 9.2 percent from a year earlier.
The Shanghai Stock Exchange Property Index (SHPROP), which tracks 24 developers, was little changed at the close after rising as much as 1.4 percent. The benchmark Shanghai Composite Index (SHCOMP) added 0.2 percent.
Major cities also led gains in existing home prices. They rose 9.1 percent in Beijing last month from a year ago, the most among the 70 cities. Existing prices increased 7.2 percent in Shanghai, 7.5 percent in Guangzhou and 6.2 percent in Shenzhen.
“The Chinese property sector is a bubble,” Tao Dong, head of Asia economics excluding Japan at Credit Suisse Group AG, told Bloomberg Television in Hong Kong today. “We do have a problem. But a bubble today doesn’t mean that the bubble has to go down tomorrow. It might last for a while.”
Slowing economic expansion is alleviating concerns that the government may impose more property curbs because too stringent tightening will impact growth, according to Citigroup Inc. analysts led by Oscar Choi. The economy grew 7.7 percent in the first quarter, less than the 8 percent median forecast in a survey of 41 economists.
Private data also showed increases in prices. Home values last month climbed the most in more than two years from February, according to SouFun Holdings Ltd. (SFUN:US), the country’s biggest real estate website owner.
“There are actually people who rushed into the market to finish transactions before the local government details,” Wang Tao, chief China economist at UBS AG, told Bloomberg Television in Hong Kong today, saying that many of the measures have been “watered down.” “Local governments rely a lot on property for revenue, so they don’t have incentives to kill their cash cow.”
China’s cities, especially smaller ones, got at least 21 percent of their revenue, and in some cases as much as half, from selling land last year, according to UBS.
Home sales rose 69 percent in the first quarter to 1.2 trillion yuan ($194 billion) from a year earlier, the biggest first-quarter gain in three years, the statistics bureau reported April 15.
“The residential property market in China is still under strict controls, but you can see the overall demand is still there,” Freddy Lee, chief executive officer of Shui On Land Ltd. (272), a Shanghai-based developer, said at a conference in the city on April 16.
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