China: A two-speed housing market recovery - ING

Prakash Sakpal, Economist at ING, notes that the China’s April home price data brings evidence of cooling measures in overheated Tier1 cities bearing fruit. Differentiated recovery requires differentiated polices.

Key Quotes

“65 of the 70 cities in the National Bureau of Statistics home price survey reported sequential price increases, up from 62 in March. 21 reported increases in excess of 1%, up from 18 in March. The number reporting declines fell to 5 from 8.

As we expected, cooling measures in the overheated Tier-1 cities started to slow sequential new home price increases in this group; the 2.7% MoM simple average increase slowed from 3.1% in March. However, year-over-year increase scaled a fresh record of 28.2%, up from 25.9% in March. Year-over-year inflation in the other city tiers is following a similar path but is far behind that of the Tier-1 cities, which can be attributed to excess inventories in these cities.

The housing market is experiencing a two-speed recovery that requires differentiated policies: tightening of policies for Tier-1 and large Tier-2 cities and loosing of policies for smaller cities. On balance we expect housing to support an acceleration in real estate fixed asset investment growth this year, which we view as necessary for hitting the 10.5% full-year FAI growth target.”