China's Home Prices Increase As Demand Rises In Smaller Cities

China Home Prices
A worker passes a paper replica of a house at a wholesale market (Photo: Reuters)

Home prices in China have reportedly increased for the month of March.

This would be the fourth consecutive month of incremental increases following a rebound in prices thanks to the continued easing of price-control regulations in second and third-tier cities. The eased regulations in smaller cities located far from megacities have resulted in an increased demand for properties, which has in turn increased prices.

According to the most recent National Bureau of Statistics data, new home prices in 65 out of 70 cities nationwide have increased. This is an impressive figure when compared to the 57 cities recorded in February. The advance in prices follows the same pattern as prices in March have been observed to have increased incrementally when compared to the month prior. Prices reportedly increased by 0.61 percent in March, higher than the 0.53 percent gain in February.

According to the research director of E-house China R&D Institute, Yan Yuejin, the positive sentiments of home buyers in larger cities have likely spilled over to smaller cities across the country, resulting in higher demand. Yan added that home prices in smaller cities were much cheaper than those in larger cities, which mean that the rate of increase is more abundant.

Home prices in second and third-tier cities were also helped by the continued momentum of asset prices, which saw a month-on-month increase of 0.7 percent in March. Dandong city, which is located near China's northeastern border with North Korea, saw a dramatic home price increase of 1.9 percent last month.

The city, which is home to over 3 million residents, is particularly favorable to investors betting on a possible easement of hostility between China and North Korea. Investors betting on the positive outcome of the hostilities stand to make a hefty profit when the demand for homes in the area will surge.

Another big factor in the increasing demand from home buyers is the recent injection of new funds into the economy by Chinese banks. Reports have revealed that state-backed banks have so far injected more than US$251 billion in credits into the country's financial sector in the last month in an effort to bolster consumption.

The combination of the increased lending capital and the loosening of credit requirements have contributed to the increased buying power in the country. Developers are well aware of the current situation and have reacted accordingly to feed the consumer's growing appetite. All of the factors also seem to point to a stronger market outlook in the coming months.

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