February saw Chinese home prices surge to their fastest rate in two years, leaving many observers fearing the market could be entering a bubble.
Average new home prices in 70 major cities climbed 3.6% year over year in February, topping January’s 2.5% rise, according to Reuters calculations based on data released by the National Statistics Bureau (NBS) on Friday.
It was the fastest growth rate since June 2014, with 32 of 70 major cities posting price gains, up from 25 in January.
On the surface, it looks like recent stimulus measures are supporting the world’s second largest economy, which is growing at its slowest pace in a quarter of a century.
However, the market seems to be experiencing a dramatic bifurcation. Big cities are seeing home prices surge, while small cities with a supply glut experience a weakness that threatens to put more stress on the slowing economy. Continued stimulus to grow the economy could result in inflating an asset bubble.
“The government’s all-out encouragement of housing sales seems to be working, but at the cost of surging prices in big cities,” Rosealea Yao, an economist at Gavekal Dragonomics in Beijing told Reuters. “These surges in big cities are not sustainable and would increase uncertainties and instability in the overall housing market.”
The data showed tier 1 cities, including Shenzhen, Shanghai and Beijing, remained the top performers, with prices surging 56.9%, 20.6% and 12.9%, respectively.
“Prices in first-tier cities are very expensive now, it’s hard for new families to afford a home,” Tan Huajie, vice president China’s biggest property firm Vanke told Reuters.
Meanwhile, the NBS data showed that despite government measures and increased lending, the property markets in smaller cities remain soft with a glut of unsold houses weighing on prices.
Most third-tier cities still saw on-year prices drops in February, though the declines eased from the previous month.