China’s property markets may benefit from the economic uncertainty amid the trade war as Beijing is expected to launch fewer tightening measures in the rest of this year, according to Macquarie Capital Ltd.
“Chinese economy is facing an increasingly challenging situation amid the United States-China trade war,” said David Ng Ka-chun, head of Hong Kong and China property research at Macquarie. “There is less room to tighten the property markets in the remaining of this year.
“Since last October, we have seen a 5% growth in property prices in the Tier 1 and 2 Chinese cities … prices of newly built homes in China may grow further in the second half of this year,” he said in a Hong Kong media briefing during the Greater China Conference organized by Macquarie on May 17.
According to the National Bureau of Statistics, month-on-month growth in the prices of newly built homes was 0.5% in Beijing, 0.3% in Shanghai, 1.1% in Guangzhou and 0.4% in Shenzhen in April. Year-on-year growth of new-home prices was 3.5% in Beijing, 1.5% in Shanghai, 13.3% in Guangzhou and 0.7% in Shenzhen.
On April 19, the Politburo of the Central Committee of the Communist Party of China held a meeting, chaired by the party’s General Secretary Xi Jinping, to evaluate the situation of the Chinese economy in the first quarter.
Apart from reiterating the country’s economic strategies about upgrading its industries and improving people’s livelihood, the meeting also said “houses are built to be inhabited, not for speculation,” which was a principle first introduced by Xi in December 2016.
Because of the reiteration of the principle, Hong Kong-listed Chinese property stocks fell 2% to 3% on April 23 when the market resumed after the Easter Holiday. Stock investors tended to believe that Chinese property developers will see slower growth as more Chinese cities will launch tightening measures to suppress property prices.
As many home buyers adopted a wait-and-see approach, home sales in gross floor area in 40 major Chinese cities decreased 55% year on year during the Labor Day holiday, according to Cricchina.com, a property website operated by the Nasdaq-listed E-House (China) Holdings Ltd. Sales in Tier 1 cities such as Beijing and Shanghai decreased 27% in the week ended May 6 from a year ago, while sales in Tier 2 cities such as Hangzhou and Tianjin fell 68% for the same period.
However, an intensifying trade war between China and the United States may change the situation. On May 5, US President Donald Trump announced an increase in tariffs on US$200 billion worth of Chinese products to 25% from 10%, effective from May 10, as he said China refused to compromise on a trade agreement.
On May 13, China’s Finance Ministry said the world’s second-largest economy would raise tariffs on US imports worth $60 billion next month.
A cut in the benchmark interest rate is premature as the Politburo meeting in April just vowed to cool down the housing market in China, said Larry Hu, head of China economics commodities and global markets at Macquarie. But if the stock market sells off, the People’s Bank of China could resume the comprehensive reserve-requirement-ratio cut, Hu added.
“Other than the conventional fiscal and monetary policies, Chinese policymakers could also go to unconventional measures such as loosening the controls on local-government financing vehicles and the property policy,” he said.
Although we have seen differentiated housing policies across cities, the overall trend should move toward loosening as the toughest policies such as the home purchase restriction and mortgage restriction are still in place in most major cities, Ng said. Under such a backdrop, bad news about the US-China trade dispute could be good news for the Chinese property markets, he said.