In late 2018, housing essentially held up China’s economy as export growth slowed and consumers retrenched. While there is widespread concern that a property downturn is around the corner, this may yet be proven wrong.
Most leading indicators aren’t encouraging. Land area purchased, which tends to lead housing sales by around six months, dropped 34% from a year earlier in January and February. Vacant, unsold housing space rose for the first time in two years—which is worrying, given sharply falling inventories had underpinned the recent boom. And mortgage rates remain elevated, albeit slightly lower than they were late last year.
Nonetheless, house-price gains accelerated again in March, data released Tuesday showed, reversing four straight months of slower, but still positive, growth. And two recent policy changes might help maintain the momentum.
First, the official stance on property is becoming more relaxed. The housing minister took a softer tone at a recent flagship political meeting. And Beijing has just eased residency restrictions in medium-size cities, which had made it difficult for migrant workers and nonresident students to buy homes. Some analysts think releasing that pent-up demand might offset the rebound in housing inventories.
Second, the financial sector could indirectly offer a hand. Premier Li Keqiang and the banking regulator have pressed large banks to ramp up lending to small businesses. Property speculation, or “stir-frying,” nearly always accompanies rising bank credit in China, and this time entrepreneurs are likely to find ways to recycle some loans into real estate. So official mortgage lending figures might substantially understate the cash flowing into property this year.
One month of rebounding house prices is hardly a trend, and the market could still resume weakening in coming months. Nonetheless, investors should keep an eye on small-business lending, and housing inventories, for signs the market may be on stronger-than-expected ground.
Source: The Wall Street Journal