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Rising Chinese mortgage rates fail to curb price surge

Chinese economy

Rising Chinese mortgage rates fail to curb price surge

FTCR China Real Estate Index hits seven-month high as market adapts to tighter lending

The FTCR China Real Estate Index rose for a third straight month in October, reaching its highest level since March on the back of a faster increase in prices across all city tiers. Sales also rose at a more rapid clip in second-tier cities, and fell more slowly in first and third tier cities, developers said.

The housing market, which has cooled from last year’s frenzy, is adapting to tighter mortgage lending. Credit conditions became even more restrictive in October: the proportion of developers reporting that mortgage rates for first-time buyers were above the benchmark rose to the highest level in the survey’s near five-year history.

The Chinese leadership’s message from the recent 19th Party Congress is that restrictions will remain in place as the government tries to squeeze speculative behaviour out of the market. Zhou Xiaochuan, People’s Bank of China governor, cautioned that household credit is growing too quickly, while President Xi Jinping repeated the government’s new mantra that “a house is for living in, not for speculating on”.

As the government develops longer-term policies to try to bring order to the housing market, local authorities will remain under pressure to rein in speculative behaviour in local markets.

  • Developers reported that home sales rose in October, having fallen for the previous six months.
  • Our Home Sales Index rose 2.5 points to 50.5, the highest reading since March and 6.4 points higher than October last year.
  • First-time buyers were again the biggest source of demand (45.4 per cent), with those looking to buy an additional home accounting for 16.4 per cent of buyers, and upgraders making up the difference at 38.2 per cent.
  • Developers reported that the volume of sales inquiries rose at a slightly slower pace, with our inquiries index at 57, versus 57.4 in September.
  • House prices increased at a much faster pace in October than in September.
  • The FTCR China Home Price Index rose 4.8 points to 66.1, the highest level since March.
  • The proportion of developers offering discounts fell 5.3 points to 53.1, the lowest level since February 2014.
  • The supply of new houses to the market shrank again in first and third-tier cities, but there were more homes on the market in second-tier cities.
  • Our New Home Supply Index fell 0.7 points to 49.8.
  • The share of developers reporting rising sales volumes outstripped those reporting supply growth: 28.2 per cent said transactions increased while 25 per cent said supply did.
  • Our Home Sales Outlook Index dropped 4.9 points in October to 51, but price expectations improved again with the Home Price Outlook Index rising 0.6 points to 61.1.
  • Developers reported that access to discounted mortgages for first-time buyers tightened for a ninth straight month in October: just 10.5 per cent said this group could access loans below the benchmark interest rate, the smallest proportion since the peak of the last tightening cycle in September 2014 (2.3 per cent). A record 46.1 per cent said first-time buyers were paying above the benchmark interest rate.
  • Credit tightened in second-tier cities, with the proportion of developers who said buyers paid above the benchmark interest rate rising 3.9 points to 45.6 per cent, the highest level since July 2014. In third-tier cities the proportion of developers who said buyers paid above the benchmark rate dropped to 48.4 per cent from 53.3 per cent, and the figure stayed the same for first-tier cities at 43.2 per cent.
  • Sales volumes rose in second-tier cities in October and at a faster rate than in September. They fell again in first and third-tier markets but at a slower pace. Our Home Sales Index for second-tier cities rose 2.3 points to 52.6, in first-tier cities it rose 5.7 points to 46.6, and in third-tier cities it was up 1.1 points at 48.4.
  • House prices rose again across all city tiers, as they have done since April 2015. In second-tier cities prices rose at the fastest pace since September 2016, with the sub-index rising 0.6 points to 66.8. The first-tier-city sub-index jumped 10.3 points to 61.4, the highest level since March, and the third-tier-city price sub-index rose 9.9 points to 67, also the highest level since March.

The FTCR China Real Estate survey is based on interviews with 300 developers in 40 cities. For further details click here. This report contains the headline figures from the latest Real Estate survey; the full results are available from our Database.

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.

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