The recovery of the economy is improving China’s real estate market but the pace of property price growth is slow relative to the stock market performance and GDP expansion, according to Moody’s Economy.com.
Sherman Chan, economist at Moody’s Economy.com, says that the index of residential property prices in the 70 major cities rose 0.9% month-on-month in August to be up 2% on a year-ago basis, slightly faster than the 1.9% year-on-year increase booked in July.
“With the major economies around the world eventually coming out of recession, foreign direct investment will rebound, helping to fuel property development in China, where growth potential is still massive,” says Chan.
According to Chan, the modest rise in property prices has almost masked the fact that transactions have been robust. She said that, in August, sales surged 69.9% year-on-year in value and 42.9% year-on-year in area. The residential market was the fastest growing category, with sales up 74.6% year-on-year in value and 44.5% in area. “Demand for existing dwellings seems to be particularly strong, with prices rising at a more rapid pace than new units,” notes Chan, adding that existing units in Shenzhen staged the most impressive rebound, booking a 14.9% year-on-year rise in prices. “This suggests the special economic zone is now returning to business, bringing back firms and hence workers,” she says.
Meanwhile, the outlook for China’s property sector is positive. Investment in property development climbed 14.7% year-on-year for the first eight months combined, accelerating from a rise of 11.6% year-on-year booked for the first seven months. Data on funding sources show that the pickup in momentum was primarily due to domestic lending, which soared 46.3% year-on-year for the first eight months. In contrast, foreign funding plummeted 33.6% year-on-year during the same period, but this nevertheless represents room for growth in the coming year, says Chan.