Housing market slows down amid measures to curb speculation

Residential property transactions in Chinese cities have dropped to a record low as a result of government efforts to curb speculation. China’s total transaction floor spacehas fallen by 30.3 percent (from 65.13 to 45.42 million square meters) in September and October compared to the same period last year. The two months are traditionally the peak buying period. Top-tier cities like Beijing, Shanghai and Guangzhou all saw year-on-year declines by 40 percent. The total number of new home transactions in Beijing dropped by over 50 percent in October, to only 20,550.

The slowdown appears to be a direct result of government efforts to discourage speculative house purchases over the past two years. In his speech before the 19thCommunist Party Congress, President Xi Jinping had said that houses should be “for living in, not for speculating.”

This October alone, 25 municipal governments around China issued a total of 34 property control policies. Authorities have also tightened regulations for consumer lending, for example by making it more difficult to cover down payments on property with new online loans.

The market correction is necessary to prevent a speculative bubble. But it does not solve the problem that Chinese middle-class families lack other investment vehicles to save for their children or for old age.

House prices, which grew at record speeds in 2016, continued to grow in 2017, but at lower levels. The house price to income ratio in major Chinese cities is a larger than in cities like London and New York.