China: Housing prices starting to overheat - ING

Tim Condon, Chief Economist at ING, suggests that ending the contraction in housing starts is a necessary condition for boosting real estate FAI growth, which is a necessary for hitting the 10.5% FAI growth target for China.

Key Quotes

“62 of the 70 cities in the National Bureau of Statistics home price survey reported sequential price increases, up from 47 in February. 18 reported increases in excess of 1%, up from 10 in February. The number reporting declines fell to 8 from 15.

The 3.1% simple average of sequential increases in Tier-1 cities (2.2% in February) put the year-over-year increase at a record 25.9%. Shenzhen’s 62% (!) was again at the top of leader board and, unlike in February, the sequential rise accelerated in March. Inflation in the higher-tier cities is following a similar path but is far enough behind that of the Tier-1 cities to say that housing is experiencing a two-speed recovery, which we attribute to excess inventories in the higher tier cities.

The two-speed recovery requires different housing policies: Tier-1 and large Tier-2 cities are tightening policy while smaller cities are loosening policies. 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.”