China: Price momentum looks to be building in housing – Westpac

According to Elliot Clarke, Research Analyst at Westpac, momentum in China’s housing market has continued to build in recent months as in June, 84% of the 70 cities surveyed were reporting monthly price gains – the strongest outcome since August 2016.

Key Quotes

“At 90%, gains for the established market were broader still – a high back to April 2013.”

“While the breadth of gains is striking, their quantum remains relatively subdued compared to heights reached in 2015 and 2016.”

“Authorities are less likely to react to accelerating price growth in this instance given it is being seen in tier 2 and 3, where construction activity and wealth gains are desired, and because (in a macro sense) strength in residential construction is currently necessary to offset weakness in other key sectors – namely utilities and transport.”

“Growth in housing starts has accelerated ahead of sales, so it is right to expect construction momentum to hold up in the second half of 2018.”

“That being said, if the pace of sales does not follow, then construction activity growth will again fall back as inventory is worked through.”

“If authorities decide that a further easing of financing conditions is needed, it will come via another cut to the Reserve Requirement Ratio (we forecast 100bps by year end) and the provision of additional liquidity to interbank markets. By and large, region-specific mortgage restrictions will remain in place.”