According to the latest report jointly released by Knight Frank and Holdways, in February 2011, the total area of primary residential sales transactions in most of the ten major Mainland cities fell significantly from January (chart 1). This was due to the impact of the new round of government regulatory policies, alongside the Chinese New Year holiday. However, new home prices—adjusted by differences in property type, location, fittings and whether they were presale or completed units—remained stable and dropped only 0.1% from January, the first month-on-month decline since August 2010.
The State Council introduced the third round of tightening measures at the end of January 2011, after having implemented the first and second rounds in April and September 2010 respectively. The latest policies reinforce the previous measures, which included the tightening of credit control and increasing both housing supply and the construction of affordable housing. The new round of regulations focuses on restricting home purchases and mortgages, aiming to curb investment demand for Mainland homes. The new measures had an immediate impact on primary transaction volumes: eight of the ten major cities saw significant month-on-month declines in the total transacted area of primary homes. Shanghai saw the biggest fall of 83.4%, followed by 67.6% in Hangzhou and 65.3% in Beijing. Chongqing and Shenzhen also recorded corrections of over 50%. Only Tianjin and Shenyang saw month-on-month growth of 32.5% and 0.5% respectively, as home-purchase restrictions were implemented later in these cities.
The new measures have yet to have significant impact on transaction prices. Only Beijing, Tianjin and Chengdu registered month-on-month drops of 2–4% in adjusted primary home prices, while in other Mainland cities, prices continued to rise or remained stable. Moreover, on a year-on-year basis, all ten cities recorded significant growth in transaction prices. Hangzhou and Beijing outperformed with the strongest gains of 55.9% and 42.0% respectively, while other cities also registered price increases of over 10%.
Meanwhile, the government has put more emphasis on the implementation of new policies at provincial levels. Aside from Chongqing, home-purchase restrictions have been introduced in 34 major Mainland cities, with those in first-tier cities such as Beijing, Shanghai and Guangzhou being even more strictly implemented. The policies generally restrict home purchases and mortgages for non-local homebuyers and local residents who already own homes. During the recent National People’s Congress and Chinese People’s Political Consultative Conference, which formulate the future policy direction of China, the central government reiterated its strong determination to curb the property market.
With stricter implementation and the wider scope of the latest round of tightening measures, property markets in Mainland cities are expected to enter a period of consolidation and the transaction volumes of primary homes are expected to shrink further. However, as developers are expected to slow the launch of new projects amid an inactive primary property market and the government’s massive plans to construct affordable housing have yet to go live, residential supply is expected to remain limited and home prices stable in the short term.
Chart 1 Primary residential transacted area month-on-month change (February 2011)
Source: Knight Frank / Holdways