China Real Estate Investment in 2nd and 3rd Tier Cities Waning

The national real estate development climate index during the first two months of 2014 was 96.91, down 0.3 from December 2013. 

 

A recent Steelease survey revealed that March’s Steel-PMI for the construction sector in China was 60.1, up 9.31 MoM and 3.65 YoY. The index was still 49.88 when seasonally adjusted, which indicates a weak recovery for the sector and is also a sign of decreasing growth rate in new orders. 

 

According to the NBS, home prices in most major Chinese cities continue to rise during February on a MoM basis, with MoM price increases for new homes reported in 57 out of China’s 70 major cities and YoY price increases for new homes in 69 out of China’s 70 major cities. The highest YoY growth rate for a single city was 18.7%. 

 

New housing floor area beginning construction during January and February totaled 167 million square meters, but was down sharply by 27.42% YoY. Steelease believes growth rates for new housing floor area beginning construction will remain low during 2H 2014. 

 

Since it appears that home prices in some cities actually fell, some real estate companies and the local city governments of Changsha and Hangzhou are reportedly discussing a series of new policies to promote a more stable development of those real estate markets, including deregulation and reducing the limit of two mortgages held by a single individual. However, Steelease believes a cooling of property markets in 2nd and 3rd tier cities is more due to lower investment enthusiasm, and that any new stimulus measures for property markets will be limited if credit is not made more readily available.