Citic Securities predicts bleaker outlook for China’s property markets

minutes 2019/02/25 05:57:18
China's News, China's Financial News, Citic Securities

Feb 25, 2019 (China Knowledge) - China’s largest investment bank Citic Securities expects the country’s real estate market to see a large drop this year as confidence falls across the wider Chinese economy.

While land transfer fees rose to a record RMB 6.5 trillion last year due to a spike in activity in the country’s third and fourth-tier cities, such increases in land transfer fees is unlikely to happen again this year.

Conversely, Citic predicts land transfer fees to fall by 18.6% this year to RMB 5.3 trillion given the current negative outlook investors and homebuyers have towards the market.

Land transfer fees are fees collected by the local government when they sell land use rights, usually to real estate developers and can generally be used as a reflection of demand in the real estate market.

Many experts have warned of a correction in China’s property markets after having been overheated for years due to speculators flooding in to make returns on ever-increasing house prices. When first-tier cities such as Shanghai and Beijing started to curb price growth, the speculation moved to second-tier cities and so on in search of opportunities.

Last year’s growth in land transfer fees was due to growing in demand in lower-tier cities. First-tier cities collected RMB 546.9 billion worth of transfer fees down 14% YoY, second-tier cities brought in 1.6 trillion, also down 5% while fees in third and fourth-tier cities grew by 17% and 30% to RMB 1.17 trillion and RMB 320 million respectively.

Even so, most of the growth in smaller cities occurred in the early part of last year, before government started clamping down on financing channels for property development and before the impact of the trade war was truly felt.

Consumers are now more cautious due to the fast-changing environment and are slowly losing optimism. Property sales during the lunar new year period which has been traditionally a popular time for home sales has fallen by 14% YoY in term of volume while supply of new housing has fallen 29% YoY.

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