China housing sales: it’s how you count them

Is this a bubble or not? Housing sales in China are back up in November. Well, sort of.

Caveats abound on China’s economic statistics, including those on the property market. But if there is one thing to remember, it’s this: monthly data look very different from yearly data. And yearly is almost always a better guide.

Chinese news agency Xinhua said in its headline “More Chinese cities see rising home prices“. That’s true, to an extent. Compared with October, 53 out of the 70 cities in the sample saw house sales increase in November. In October, 35 cities had seen more sales than in the previous month.

But compared with November 2011, it’s another picture: only 25 of the cities saw increases, whereas 41 saw a fall in the number of sales. However, this is more than in October’s year-on-year comparison, when 12 cities saw more house sales, and 55 saw fewer.

China’s government wants to cool the property market and recently introduced measures such as a ban on buying third homes and tax restrictions. At the same time, however, it has loosened monetary policy to stimulate domestic growth as global economic conditions have deteriorated, which has had the effect of stimulating the property market.

Perhaps a chart or two might help illustrate what’s going on. Beyondbrics has created these to help paint the picture.

Source: National Bureau of Statistics (China)

So what do the analysts make of it?

UBS pointed out in a recent note that “In November, property sales grew by over 30 per cent year-on-year, the fastest pace since March 2010 before property tightening measures were put in place.”

UBS added:

Such recovery in the property sector is good news for near term growth as the economy faces weak global demand and government stimulus is constrained by local government finances. However, if the rapid sales growth continues, property price increases will most likely spread and gather pace, leading to more investment and possibly overbuild, and more importantly for the government, increased discontent in the urban population again.

JPMorgan said in a note on Tuesday:

There has been speculation whether the housing market will see another round of rebound. We believe the likelihood is small in the near term.

First, we expect the government will continue the existing property tightening measures (though not introducing additional measures) to ensure a healthy development in the housing market. A rebound in housing prices remains the last thing the top leaders want to see, both due to economic and political concerns.

Second, the market condition does not support rebound in house prices. Our calculation shows that the ratio of housing under construction is about 4.2 times the home sales in the last 12 months, which is significantly higher than the historical average of 3.3. Similarly, there are substantial regional differences in supply conditions. The oversupply condition is more severe in a few smaller cities and inland areas, where supply has increased substantially in the last five years as property tightening was stricter in tier-1 and costal areas cities.

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