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The truth about the Chinese real estate bubble

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bubble_2 May 18, 2010 (Yantao Li) The movement of the property selling price

 

According to the latest report from National Bureau of Statistics of China, in April, 2010, the selling price of property in 70 medium-large cities of China has increased 12.8% compared to the figure of same month last year. The price of newly constructed buildings has increased by 15.4% year-on-year. The price of commercial residential property has gone up by 17.3%.

 

In terms of different property types, compared to the same period last year, the sales price of economically affordable property has increased by 1.3%. The sales of price of commercial residential property has been up by 17.3%, of which the price of general residential property increased 16.6%, the price of high class residential property climbed up by 19.6%.

From the perspective of different regions, the selling prices of property in all of 70 medium-large cities have increased year-on-year. The top three cities with the largest increase rates are: Haikou 64.3%, Sanya: 58.2%, Wenzhou 26.1%, Jinghua 23.8%, Beijing 21.5%

In April, the sales price of second hand property increased by 10.5% compared to the same month last year. In terms of different regions, the selling price has increased in 69 cities all over China. The top 5 cities with increase rates are: Sanya 48.8%, Haikou 37.4%, Wenzhou 25.5%, Shenzhen 21.3%, Hangzhou 17.7%.

However, while the selling price keeps increasing, the trading volume has largely gone down. The square meters of commercial residential property sold stood at 80.51 million square meters nationwide, decreased by 1.55 million square meters compared to last month.

The graph below illustrates the property sales status in Songjiang District in the city of Shanghai for last 10 months.

prop_prices_shanghai

While the selling price keeps increasing, the trading volumes in terms of units sold have dramatically decreased. That’s typically what is happening in the China real estate market these days. It might suggest that both property buyers and real estate developers are observing.

From the perspective of property buyers, for those general property buyers, their purchase behaviors are limited by the increasingly difficult access to the loans. For those wealthy buyers, most of who treat properties as investments, they are also hesitated by the uncertain market future and the larger possibility that the property price will go down. Therefore, the trading volume has significantly decreased.

In terms of the real estate developers, they might want to observe the market reaction to the curbing policy and keep increasing the selling price to test the market. Therefore, the selling price is still climbing up.

Following table summarized from data released by National Bureau of Statistics of China detailedly shows the change of sales price indices of property in 70 medium-large sized cities from February to April.

Sales Price Indices of Property in 70 Medium-Large Sized Cities month-on-month from February to April

Note: Index- the previous month=100

(e.g. for index of March, assuming index of Feb=100)

prop_table_YL1

prop_table_YL2

Summarize from statistics of National Bureau of Statistics of China, sources of data:

Apr: http://www.stats.gov.cn/english/statisticaldata/monthlydata/t20100511_402641528.htm

Mar:http://www.stats.gov.cn/english/statisticaldata/monthlydata/t20100415_402634653.htm

Feb:http://www.stats.gov.cn/english/statisticaldata/monthlydata/t20100311_402626376.htm

From the table above, we can see that the sales prices in most of the medium-large size cities are still increasing at around 1.2% month-on-month for the last three months.

The future of the selling price in China real estate market is not really clear. However, it is much more likely that after observing the diving trading volume of property, the real estate developers will cut down the selling price in a near future.



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