As I said from Fin Review today
Rebound in China’s property market continues improving outlook for iron ore
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Property prices in China are rising again, but will it last? Bloomberg
by
Angus Grigg
The rebound in China's housing market continued in February, supporting the recent iron ore rally, but leading to fears of a Japanese style property collapse as prices surge in major cities.
New home prices rose on a monthly basis in 47 of the 70 largest cities across China, up from 38 in January, according to the National Bureau of Statistics.
Prices declined in 15 cities and were flat in a further eight.
It was the best performance since April 2014.
"Property prices will continue to rise through the first half of this year," said Yan Yuejin, an analyst with the research arm of real estate firm, E-House.
"The property price increase will encourage more investment in the property sector, especially for middle and high-end property," he said.
Mr Yan said rising house prices were good news for the steel and cement sectors and would lead to property investment growth of 4 per cent this year, compared to just 1 per cent in 2015.
This more optimistic outlook for the housing market has lifted the iron ore price by 29 per cent this year to around $US56 a tonne, according to Metal Bulletin.
While earlier price increases were largely confined to major cities, the recent rises have also spread to outlying centres including Hohhot.
The Inner Mongolian city was often mentioned among China's famed ghost towns. It saw home prices steady in the middle of last year and risen in three of the last four months.
The steel town of Tangshan, outside Beijing, saw new home prices rise in February for the first time since April 2014.
While the recent rally in the iron ore prices and has been partly caused by speculative activity in the futures market, the pick-up in China's housing market and Beijing's more supportive economic policy is also seen as a factor.
On Wednesday Premier Li Keqiang said it was "impossible" for China not to reach its growth target of 6.5 per cent this year.
"Any sign the economy may slide out of its appropriate range we will employ innovative means to exercise macro-economic regulations to ensure our steady economic performance," the Premier told a press conference.
But the run up in house prices in major cities, driven by speculative activity, is beginning to cause alarm.
Prices in the southern City of Shenzhen have risen 58 per cent over the last year, while the commercial capital of Shanghai has seen gains of 25 per cent.
The Minister for Housing, Chen Zhenggao, said on Tuesday it was not appropriate to compare China's property market today with that of Japan in the 1990s.
"The two countries are at different stages of economic development and urbanisation. We also have different macro policies to control the situation," he said.
The government has pledged to crackdown on loose lending practices, which have allowed some buyers to skirt the minimum down payment requirements.
But it looks to be tolerating surging house prices in major centres in the hope these will flow onto secondary cities which are struggling to clear an excess supply of apartments.
China has an estimated 8 million unsold apartments across the country and the government has made clearing this backlog a policy priority for 2016.
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