China Economic Comment – September 2014

Conditions in China’s real estate sector have slowed considerably across 2014. The sector has been a key contributor to economic growth in recent years and a slowing trend will impose greater pressure on other parts of the economy to provide growth momentum, particularly if the Government aims to maintain its current growth target.

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A slowing trend in real estate could weigh on China’s growth prospects

Conditions in China’s real estate sector have slowed considerably across 2014. The sector has been a key contributor to the country’s economic growth in recent years and a slowing trend will impose greater pressure on other parts of the economy to provide growth momentum, particularly if the Government aims to maintain its current growth target.

Recent property market trends – prices weaker as sales slow

China’s residential property markets have shown increasing weakness across recent months. Over the first eight months of the year, sales of residential property fell by around -11% yoy (on a square metre basis), while new starts for residential buildings fell by -14% yoy over the same period.

House prices, which grew strongly up until late 2013, have started to decline in monthly terms. That said, trends in individual cities differ considerably. Prices in tier 1 cities (Beijing, Shanghai, Shenzhen and Guangzhou) rose far more strongly than in smaller cities over the past few years – according to China Index Academy data, the average price in tier 1 cities was over three times higher than the average in tier 2 in August.

Price growth started to slow in late 2013, and in recent months, prices have fallen (in monthly terms). Falls have been most noticeable in tier 2 cities – with those in tier 3 and below falling more modestly (having risen less significantly previously).

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