Residential and office buildings in Beijing, China. Photo: Reuters, Jason Lee
Residential and office buildings in Beijing, China. Photo: Reuters, Jason Lee

China’s real estate investment rose 6.9% in 2016, official data showed on Friday, as national sales posted their strongest annual growth in seven years thanks to a furious property boom in top-tier cities.

Real estate investment, which directly affects about 40 other business sectors in China, is considered to be a crucial driver for the economy. China’s economy expanded 6.7% in 2016, meeting expectations, official data showed on Friday.

But analysts take divergent views on whether the red-hot property market will remain a major growth driver in 2017, given that authorities implemented a series of buying and ownership restrictions in hot markets to prevent a sudden correction damaging the broader economy.

Friday’s data shows market players remained relatively optimistic about the resilience of the housing market, partially due to low inventories and firm demand in top tier cities, despite softer price growth.

Growth in property investment quickened significantly in December to 11.1%, from an increase of 5.7% in the previous month, according to Reuters calculations, even as house prices showed signs of further cooling in some major cities.

“I don’t think anything in terms of property investment has taken a hit even with current policy controls. It’s a much longer-term process and not policy-sensitive,” said David Ji, Head of Research for China at property consultancy Knight Frank.

Ji said a lack of investment options in China makes buying property still a much-desired way to channel additional income.

“The government faces a dilemma. On one hand they try to slow prices on the demand side. On the other hand, property developers will still head to the hot markets to develop. It’s also in line with local governments’ interests to garner land revenue,” Ji said.

“Unless the government introduces something more drastic such as a property tax. But it has been talked about for years and faced heavy local resistance,” he added.

A change in the international environment, evidenced by the uncertainties created by incoming US President Donald Trump, has also meant China is likely to have to look inward for growth drivers, where property still comes in handy.

“I’m not sure this year is the year that the Chinese government really wants to clamp down on the property market. The international environment has changed,” Ji said.

China depended heavily on the property market and record government spending to drive growth last year. Chinese banks extended a record 12.56 trillion yuan (US$1.82 trillion) of loans in 2016, half of which was in mortgage loans.

New housing starts, a telling figure of property developers’ confidence in the market, rose 12.5% in December compared to a year earlier, quickening from November’s 3.3% rise.

Sales volumes also improved, despite restrictions on home-buying in China’s biggest cities. NBS data showed, in December alone, growth in sales measured by floor area quickened to 11.8% from a year ago, compared to a 7.9% rise in November.