Expect Home Prices In China To Increase More This Year

Apartment buildings in Beijing (Photo: Reuters)

The bad news for Chinese home buyers: home prices will rise faster than expected this year. The good news: the price spike is slowing down.

Home prices in the mainland will see a higher than expected boost as the central government goads banks into lending more to home buyers while slashing interest rates in the hopes of stimulating the sluggish economy.

China's average residential property prices are forecast to jump 5 percent in 2019 year-on-year, said a survey by Reuters. This price spike is way above the gain of just 0.5 percent expected in the previous survey in December, according to a Reuters poll of 17 property analysts and economists.

Property investments are now expected to increase by 7 percent for the year compared to 4 percent in the last poll. Reuters noted that some developers have shown more confidence in the market as domestic financing conditions improve.

The welcome news is that new home prices in China grew at their slowest pace in 10 months in February. Analysts said this slowdown is a sign of tepid demand caused by the cooling economy. Prices, however, have risen for 46 straight months, and year-on-year growth was a hefty 10.4 percent.

There is a strong underlying demand for housing and the relaxation of home purchase restrictions in some cities will likely boost prices. China's large cities, on the other hand, are widely expected to keep restrictions to deter speculation in place unless the economy falls sharply;

"It is expected that the marginal relaxation of local policies will begin to take effect in the second half of 2019, which will form certain support for demand and price," said Daniel Yao, head of research for China at commercial property services provider JLL

Reducing mortgage rates, withdrawing previous controls over home purchases and loosening requirements for a provident-backed mortgage could be possible steps to boost demand, said Betty Wang, senior China economist with ANZ bank.

Major price declines are out of the question due to tight government control over the property market. Housing sales are still expected to drop 5 percent in 2019, which is in line with the previous poll.

Sun Hongbin, Chairman and founder of Sunac China Holdings (China's fourth largest developer) isn't optimistic about the country's property market, however.

"Stabilizing home prices is the government's core pledge ... any substantial relaxation of the current tight home price policies is impossible," he said.

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