China property prices explode - TDS

Research Team at TDS, notes that the 70 city property prices in China were released for March and it is a red hot report, reflecting the “more than a rebound from February” seen in most real activity indicators to date.

Key Quotes

“After digesting this strong report, we have no doubt that we can brace for a fresh bout of headlines discussing the ‘return’ of Chinese property price bubbles and unsustainable debt levels.

New home prices in March rose in 62/70 cities (highest ratio in over two years) while Existing home prices rose in 54/70 cities (the highest ratio since December 2013).
Of the seven largest cities, monthly increases in prices of existing properties accelerated across the board, with Beijing and Shanghai at +6.3%/mth and +6.2%/mth respectively leading the way with Shenzhen and Guangzhou at +4.7%/mth and +3.5%/ mth. In most cities, these are the highest monthly growth rates since these series were collected.

We learned from last week’s Dec qtr GDP report that property and investment added to growth in the quarter. While construction levels to date (measured in sq m) so far appear on par with previous years the Q1 average is actually 13% higher than levels of a year ago.

Fears about a frothy property market is likely to spark fresh speculation about new loan restrictions and other such macroprudential policy tools. The PBoC cut the deposit and loan benchmark rates by -125bp last year, and cut the RRRs by 50bp earlier this year, so clearly this accommodative monetary policy is working. Maybe too well.

We suspect that “on hold” interest rate policy could be prudent for now as the PBoC assesses whether the widespread bounce in real and nominal indicators is merely an outsized rebound from a weak February, or a sign than an unsustainably strong Q2 lies ahead.”