China: Property Market Monitor

With increasing focus on the Chinese property market we initiate a more intense monitoring of the Chinese property market. We intend to publish our monitor every month based on the release of the monthly house price data.

House prices continued to decline in November, albeit at a moderate pace. The current downward pressure on house prices is driven mainly by increased supply of new homes. House sales have been more resilient, but show major regional differences. With inventories of unsold homes increasing, housing starts and production of building materials have started to decline.

The slowdown in the property market has not been as severe as in 2008. However, house prices will continue to decline in the coming months. With new home supply expected to ease in H1 2012, the development in home sales in the coming months will be decisive for the severity of the slowdown.

Details

Nationwide house prices in November (seasonally adjusted) declined 0.2% m/m after declining 0.3 m/m in October. This was the fifth month in a row with a month-onmonth decline in house prices nationwide. Since June house prices nationwide have declined by 0.8%. Year-on-year the increase in house prices in November eased from 2.9% y/y to 2.3% y/y.

The demand-supply balance measured as the difference between home sales and supply of new homes continues to deteriorate. However, so far this deterioration appears to have been largely driven by increased supply of new homes, while home sales for China as a whole have been broadly flat since late 2010. In November seasonally adjusted home sales increased 3.0% m/m after declining 2.9% m/m in October. Year-on-year home sales in November eased further from 6.6% y/y to 2.2% y/y. However, there are big regional differences in home sales (see charts on next page). In Beijing and Shanghai house sales are declining, while sales elsewhere have been more resilient. 

Completions of new homes in November (seasonally adjusted) increased 6.3% m/m after increasing 1.6% m/m in October. Year-on-year new home completions accelerated further to 32.2% y/y from 24.5% y/y in October. With home sales broadly flat at the moment, this suggests that inventories of unsold homes are increasing substantially at the moment.

Increasing inventories of unsold homes have started to weigh on housing construction. Seasonally adjusted housing starts declined 4.8% m/m in November, which was the third month in a row with a decline. Year-on-year housing starts improved from -1.3% y/y to 2.6% y/y. The weakness in housing starts suggests that the supply of new homes should ease in H1 2012.

The weakness in housing construction is now evident in industrial production, especially within building materials. Production of cement in November declined 1.6% m/m and is now up a modest 6.5% y/y. Production of reinforcing steel in November dropped 3.1% m/m after declining 5.0% m/m in the previous month, but is still up a solid 16.7% y/y.